What is a Public Limited Company?
A Public Limited Company is a separate legal business entity which offers its shares to the general public to trade on the stock exchange. According to the regulations of corporate law, a Public Limited Company must present its financial statistics and position to the public to maintain transparency.
A public limited company is different from private limited companies. However, both aim to earn profits in the business. Following are the various features of a PLC:
Features of a Public Limited Company
- Ownership: The ownership of a Public Limited Company lies with two or more shareholders who own shares of the company.
- Index of Members: A public limited company must keep an index of its members along with their names.
- Paid Up Capital: The company must have a minimum paid-up capital as decided by the corporate law of that country. According to the Companies Act, 2013, a Public Limited Company in India must have ₹5,00,000 as the minimum paid-up capital.
- Perpetual Succession: The company is an individual person. It is independent of the death, bankruptcy or insolvency of any of its members.
- Formation: A Public Limited Company can be formed after the appointment of at least 2 directors and a qualified company secretary.
- Directors: A public company must have 3 or more directors for existing.
- Name: The company’s registered name has to end with the word ‘limited’ for making it a Public Limited Company.
- Limited Liability: The liability of the shareholders of a Public Limited Compan, in case of loss or debts is only limited to the amount of investment they make in the company. Their assets cannot be charged liable for any damages or losses.
- Prospectus: It is mandatory for a Public Limited Company to issue a prospectus with the statement of purpose and plans of the company.
- Abided by Law: A Public Limited Company must abide by the corporate laws of the country. Indian Public Limited Companys are required to follow the regulations of the Companies Act, 2013.
- Minimum Subscription: A Public Limited Company must acquire at least 90% shares of the total shares issued by the company within a particular period.
Incorporation of a Public Limited Company in India
A Public Limited Company is owned by the public and has a distinct identity and is managed by the board of directors.
Therefore, the registration procedure of a Public Limited Company is quite lengthy and involves a lot of formalities. Requirements for this form of business organization
Basic Requirements to Set Up a PLC
- One Resident Director: One out of the 3 or more directors of a public limited company must be a resident of India.
- Minimum Seven People: To establish a Public Limited Company, a minimum of 7 people are required who can act as directors, shareholders or both.
- Unique Name: Every Public Limited Company must have an exclusive name to get its trademark registered. This name must not be identical to any other company.
- No Minimum Capital: A Public Limited Company can be started with the necessary capital required, there is no minimum capital specified. However, the minimum share capital (both authorized and subscribed) required is ₹5,00,000.
Documents Required for a Public Limited Company
A Public Limited Company requires certain documents as evidence of the director’s identities and the registered office of the business. They are explained in detail below:
Identity Proof: Disclosure of identity of the company’s directors include the following:
- One personal identity proof like aadhar card, voter id, driving license or passport
- PAN card for Indian nationals and passport for foreign nationals is mandatory
- Foreign national’s nationality proof
- 2 passport size photographs
- LLP for authorization of directors or partners/ Resolution of the board of the company
Address Proof: Address proof of the directors are electricity bill, telephone bill, mobile bill or bank statement (they must not be older than 2 months).
Proof of Registered Office: Its registered office is the place where the business is to be commenced or controlled. Documents include:
- NOC from Landlord
- Rental agreement along with the rent receipts, conveyance, lease deed, etc. (any one of these)
- Photocopy of one of these, telephone bill, gas bill or electricity bill which is not older than two months.
Other Documents: Other than the documents mentioned above, the following are a few more relevant documents required to be submitted under certain conditions or otherwise:
- Physical Digital Signature Certificate signed by the directors and the shareholders.
- In case of foreign directors, all the documents must meet the following obligations:
- Notarized; for residents in Commonwealth countries
- Notarized & Apostiled; for residents of a country which is a signatory to Hague convention
- Notarized & Consularised; if not a part of the above categories.
Registration Procedure of Public Limited Company
The procedure of incorporation under the following eight steps:
- Name Reservation: The company must get its name approved as per the Companies Act, 2013, which is valid for 20 days from the date of approval. A company can propose to and apply for 2 names and can go for one resubmission (RSUB) under the Reserving Unique Names (RUN) web service.
- Digital Signature Certificate of Director (DSC): Filing of the online application form for a public limited company requires signatures supported by the DSC of the directors and the shareholders.DSC can be taken by submitting a DSC application attached with identity proof, address proof and photographs of the respective signatory.
- Obtain Director Identification Number (DIN): The directors must file a DIN application along with the address proof id proof attested by any CA, CS or CMA. The Registrar of Companies (ROC) is responsible for issuing the Directors Identification Number (DIN) which is a unique identification number, to become an official director.
- Approval of Other Authorities: The applicant must get an approval from the respective department, appropriate authority, the regulatory body or ministry of Central or State Government depending on the type of business and its work, to the ROC.
- Document Submission: An application for incorporation of the Public Limited Company supported by a declaration, affidavits, Memorandum and Article of Associations must be submitted to the ROC.
- Certificate of Incorporation: It is a registration certificate issued by the ROC after inspecting the application and documents submitted. The business can now operate under the norms of a Public Limited Company.
- PAN & TAN of the Company: Simultaneously along with the certificate of incorporation, the applicant must apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) which must then be mentioned in the certificate of incorporation.
- Opening of Bank Account: Finally, it is mandatory for the Public Limited Company to open a current account with any bank, by submitting the registration certificate and other necessary documents.
Advantages of Public Limited Company
Public limited Companies contribute a lot to the economic development and growth of the country. The different benefits of a Public Limited Company are explained one by one in detail below:
- High Credibility: The investors find the Public Limited Company more reliable and trustworthy therefore increasing its credibility.
- Tax Efficient: A Public Limited Company gets various tax benefits like tax-deductible costs and other allowances on paying the corporation tax, the company saves from paying high-income tax.
- Limited Liability: The shareholders are not liable to pay the company’s debts or losses beyond their investment amount value during insolvency or bankruptcy.
- Additional Capital: Initial Public Offering (IPO) is a source of raising funds to meet the capital requirement of the business.
- Expert Board of Directors: The company must efficiently be managed by the board of directors that comprises of expert and talented people.
- Business Growth and Expansion: Acquisition of additional capital by issuing of shares, providing financial strength to the business and developing the scope of growth.
- Easy Share Trading: The shares of a Public Limited Company can be bought or sold in the stock exchange market. With the aim of making it convenient for the investors and shareholders to acquire a portion of the company.
- Risk Spreading: There are many shareholders owning small portions of the company therefore the risk of loss and insolvency is also widely spread among them.
Disadvantages of Public Limited Company
Public Limited Company is an excellent option for the entrepreneurs who lack capital for starting a business but it has certain drawbacks as well.
The following are the limitations of a Public Limited Company:
- More Regulations: A company is bound by the laws and regulations formed by the corporate houses to function as a Public Limited Company which is a hefty task.
- Loss of Ownership: A company must go public to work as a Public Limited Company, which leads to sacrificing the owner’s possession over the company.
- Lack of Control: Loss of ownership leads to the loss of control over the decision making in the company.
- Disclosure of Company’s Financial Position: A Public Limited Company has to disclose the complete financial health of the company to the public to assure maximum transparency.
- Profit-Sharing: The profit shared among all the shareholders, where each one of them are entitled to receive a tiny proportion of that profit.
A Public Limited Company is usually established to generate capital from external sources like the general public for commencing a business, business expansion, technological advancement. global expansion, etc.
A Public Limited Company is suitable only to large organizations which have comprehensive perspectives and higher growth possibilities, rather than a small petty shop located next door.