Public Limited Company Registration
A great number of businesses choose to incorporate as a company limited by shares rather than other forms, such as the sole trader, partnership, limited liability partnership (LLP) or company limited by guarantee.
While most companies limited by shares are set up as private companies, in this article we look at the advantages and disadvantages of a public limited company. As well as those forming new companies, a proper evaluation of the advantages and disadvantages of a public limited company will be needed for an existing private limited company considering converting to a plc.
As ever, if you’re at all unsure about the best course of action, we’d strongly suggest you speak to your solicitor or accountant, who can give you detailed information and advice that takes account of your personal circumstances.
Public Limited Companies are companies whose shares are traded in stock market or issues fixed deposits. For Public Limited Company Registration, the company must have minimum 3 Directors, 7 Shareholders and Maximum 50 Directors and need Rs. 5 Lakhs of Paid up Capital. A Public limited company have all the advantages of Private Limited Company and the ability to have any number of members, ease in transfer of shareholding and more transparency. Public Limited Registration is done through TAXAJ.
A public company as per Section 2(71)-
- A company which is not a private company.
- A company whose minimum paid up capital is Rs. 5,00,000.
- The company being subsidiary of a company, which is not being a private company it shall be a public company for the purposes of the act
Get your public limited company registered in the fastest possible manner.
It usually takes 7 to 10 working days.
- Name approval in RUN (Reserve your unique Name)
- DSC (3 nos)
- Filing of SPICe+ Form
- Issue of Incorporation Certificate along with PAN and TAN
- Includes Govt Fees & Stamp duty for Authorised Capital upto Rs. 1 Lakh except for the states of Punjab, Madhya Pradesh and Kerala
- Excludes foreign national / Body Corporate as director or business needing RBI/SEBI approval
- Assistance in Opening Bank Account
- Businesses looking to expand or scale operations on higher level
- Startups looking to raise capital and issue ESOPs
- Businesses looking to convert their existing firm structure into private limited company
- Businesses aiming to work globally or with reputed clients
Name approval form filing
Preparation of Incorporation Documents
Getting those docs signed by the respective stakeholders
Filing of e-Forms with ROC
Receipt of Incorporation Certificate with PAN, TAN, GST, EPF, ESI & Bank Account.
Name, Contact Number and Email Id of all the Stakeholders.
Directors Identification Number, if already.
Self Attested PAN, Aadhar & Passport size photo of all the Stakeholders.
Apostilled Passport, Mobile Bill and other KYC docs in case of NRI Stakeholder.
Latest Month Personal Bank statement of all the Stakeholders.
Specimen Signatures of all Stakeholders.
Few Proposed Business Names along with Objects.
Latest Electricity Bill/Landline Bill of Registered Office.
NOC from owner of registered office. (If Owned)
Rent Agreement from Landlord. (If Rented/Leased)
Brief description of main business activities of the proposed Company.
Shareholding pattern between the Stakeholders.
Authorised & Paid Up Share Capital of the Company.
Characteristics of a Public Limited Company:
Separate Legal Entity
A Public Company is a legal entity that has separate identity from its shareholders/members. A company that can own property on its own name.
This means that a shareholder of public limited company can easily transfer its shares to the public. There is no restriction on the transferring shares to the public or inviting the public to subscribe shares to the public.
The company can never come to an end. This means that the members/ directors/ shareholders may come and go, but the company never becomes non-existent. Due to the death or disability, the company never dies. It continues till the company is not closed or liquidated.
The liability of the shareholders/directors is limited to the extent of the shares owned by them. The shareholders are not liable personally in case of losses or debts suffered by the company.
Paid Up Capital
The minimum paid up capital required by public company to start its operations are Rs 5, 00,000. This is the new amendment as per the Companies Act, 2013
In the name of the public company, the word “LTD” will be prefixed at the end of the name.
In case of public company, the number of directors can be minimum 3 and maximum can be as many. There is no above limit.
They must only possess the Director Identification Number (DIN) which is issued by the Ministry of Corporate Affairs (MCA).
The registration of public limited company can issue a prospectus for inviting the public to subscribe to its shares.
Prospectus is the statement comprising the detail information about the company and the number of shares invited by the company in that particular IPO or subsequent listing.
The attraction point of the public company is that it can borrow from various sources. A public company can issue Debentures (secured or unsecured) and raise the money. It can issue shares (equity or preference) to the public. Even banking and other financial institutions give the loans/ financial aid to the company.
Number of Members
The minimum number of members in the public company required is 7 and for maximum there is no limit.
Board of Directors
The minimum number of BOD required is 3 and maximum is 12. They are elected by shareholders in the Annual General Meeting.
It is easy to buy shares in the public company and so it is as easy to exit the public company.
The minimum amount which has to be received on the subscription of shares has to be 90 percent of the shares in the public company. When the company is not able to receive the 90 percent amount then they cannot continue with the business.
The minimum subscriber to the Memorandum of Association of Public Company has to be 7. They are the members of the company.
Certificate of Commencement
While in the case of public company, this is an important document which has to be acquired by the public company before starting the business. In case of private company, the Certificate of Incorporation was the last document required. However in case of a public company, the Certificate of Incorporation as well as Certificate of commencement is required both.
Memorandum of Association
The MOA is a major document in the formation of public company. A private company can start its business after making only Articles of Association. Whereas for the public company the Memorandum is its important document which has to be submitted to MCA as well in the registration of the company.
Memorandum is defined in section 2(56) of Companies Act 2013. It states the main objectives of the companies that is, the main businesses which the company is going to undertake.
Procedure for Registration of a Public Limited Company
Step 1: Digital Signature Certificate (DSC)
Since the registration procedure of a company is entirely online, a digital signature will be required for filing the forms on the MCA portal. For all proposed directors as well as the subscribers of the memorandum and articles of association, DSC is compulsory.
Step 2: Director Identification Number (DIN)
It is an identification number concerning a director; it has to be procured by anyone who intends to become a director in a company. DIN of a proposed director in addition to the name and address proof has to be mentioned in the company registration form.
Step 3: Registration on the MCA Portal
A completed SPICe+ form has to be submitted on the MCA portal in order to apply for company registration. To fill the SPICe+ form and submit the required documents, the Director of a company needs to register on the MCA portal. After the registration process is completed, the director will get access to the MCA portal services which comprises filing e-forms as well as viewing public documents.
Step 4: Certificate of Incorporation
After the registration application is submitted along with the concerned documents, the Registrar of Companies will inspect the application. After the application is verified, he will issue the Certificate of Incorporation of the Public Company.
Advantages of a Public Limited company
As a limited company, a public limited company shares the advantages of a limited company with its private counterpart. But there are also specific features of a public limited company, many of which reinforce one another, that give it some unique advantages:
Raising capital through public issue of shares
The most obvious advantage of being a public limited company is the ability to raise share capital, particularly where the company is listed on a recognised exchange. Since it can sell its shares to the public and anyone is able to invest their money, the capital that can be raised is typically much larger than a private limited company. It’s also possible that having stock listed on an exchange could attract investment from hedge funds, mutual funds and other institutional traders.
Widening the shareholder base and spreading risk
Offering shares to the public gives the opportunity to spread the risk of company ownership among a large number of shareholders. This may allow early investors in the company to sell some of their own shares at a profit while still retaining a substantial stake in the company.
Obtaining capital from a wide range of investors has some advantages over relying on one or two “angel investors”, as many private companies will choose to do to facilitate growth. While an angel investor may provide a large amount of capital and expertise, the founders may not be comfortable with the level of influence over the company’s direction that the angel will often expect.
Other finance opportunities
As well as share capital, a public limited company will often find itself in a better position when looking at other potential sources of finance. The demands of being a public limited company and maintaining a stock exchange listing, for example, can help to improve a company’s creditworthiness when issuing corporate debt (and therefore reduces the return the company needs to offer investors).
Banks and other financial institutions may be more willing to extend finance to a public limited company, particularly one that is listed. The company could also be in a better position to negotiate favourable interest rates and repayment terms on loans.
Growth and expansion opportunities
The value of being able to raise finance is in how it can be employed to serve the business. By having more finance potentially more readily available and on better terms than a private company, the public limited company ican be in an advantaged position to:
- Pursue new projects, new products or new markets
- Make capital expenditure to support and enhance the business
- Make acquisitions (whether in cash or by offering shares to the shareholders of the target business)
- Fund research and development
- Pay off existing debt (or replace existing debt with new debt on better terms)
- Grow organically
Prestigious profile and confidence
Whether deserved or not, having ‘plc’ at the end of a company name can add standing and prestige. There is a sense of status about a public limited company that its private company counterpart just doesn’t quite have, which can affect how the business is viewed. While often more imagined than real, this perception of being more established, larger or more powerful can affect the behaviour of customers, suppliers and employees.
More people are likely to be aware of the company if it is public, particularly if it’s listed on a stock exchange. In that case, it’s more likely to receive attention from the media and investment professionals. This is effectively free publicity, meaning more people will recognise the company and its products or services. Better brand recognition can lead to more sales. It may also make you more visible to valuable potential business partners.
Credibility and confidence are reinforced by:
- Operating under a stricter legal regime than private companies in many areas
- Higher share capital requirements
- Greater transparency (for example, in the required form of accounts)
- For listed companies, the indirect endorsement of having their shares listed on a recognised exchange
Again, these factors can affect the behaviour of (potential) shareholders, customers and business partners.
Transferability of shares
The shares of a public limited company are more easily transferable than those in the private equivalent, meaning shareholders benefit from liquidity. If shares are quoted on a stock exchange, shareholders and potential shareholders will generally find it easier to transfer shares in the company – although the market still relies on willing purchasers and sellers being available.
The fact the shareholders are less bound to remain with the company can give them comfort – and may help the company by making people more willing to invest.
Without restrictions on transferability of shares that often apply in private companies, it’s also easier to deal with situations like a shareholder’s death, allowing shares to be transmitted in line with the terms of any will.
Going public can enhance the options for the founders to exit the business at some point in the future, if they wish to do so. Both higher transferability of shares and the increased visibility of the business and its performance may increase the chances of bid interest from potential suitors.
Disadvantages in a Public Limited Company
There are some important disadvantages of a public limited company, compared to a private limited company. These public limited company disadvantages include:
More Regulatory Requirements:
To help protect shareholders, the legal and regulatory requirements for a public limited company are more onerous than for private limited companies. For example, additional restrictions include:
- A trading certificate must be obtained from Companies House before the company can trade (there is no such requirement for a private company)
- The need to have at least two directors (only one is required in a private company)
- More onerous rules apply concerning loans to directors
- A suitably qualified company secretary must be appointed (not required for a private company)
- As well as higher transparency around accounts, they must be produced within 6 months of the end of the financial year (9 months for private companies)
- AGMs must be held, whereas in a private company decisions can more often be made by resolution
- There are various additional restrictions on the company’s share capital and limits on pre-emption rights and dividends
If the company’s shares are listed, the company will also need to follow the rules of the market. These rules, particularly those to be listed on the London Stock Exchange, are demanding.
Understanding and applying these additional rules will consume time and effort that cannot then be dedicated to growing the business. Appointing staff or advisers – including the required company secretary – will help but come at a cost.
Higher Levels of Transparency Required
Limited companies, whether public or private, have more of their details in the public domain, available via Companies House, than other business types. But the required level of transparency is much higher for public companies.
As well as needing to have its accounts audited, public limited companies are generally unable to file abbreviated accounts, whereas smaller private companies can often do so. The fuller form of accounts means a public limited company has to disclose more detailed data about the business and its performance, information which is then available to anyone who wishes to access it.
The accounts of public limited companies are often scrutinised more by analysts and receive more media commentary.
Ownership and Control Issues
With a private limited company, the shareholders will typically be people known to the directors or founders. A private company will often be selective over who to admit as a shareholder, ensuring they support the vision and plans for the business. The use of pre-emption rights can allow existing shareholders to maintain control over the company when a new share issue is undertaken, a shareholder dies or wants to transfer their shares.
With a public limited company, it’s much harder to control who is a shareholder of the company, and who the directors are ultimately accountable to. There is therefore a possibility that the original owners or directors can lose control of the direction of the company, face disputes or just spend a lot more time managing shareholder expectations.
Institutional shareholders can wield particularly high levels of influence, often expecting consultation and adoption of particular policies or standards in return for their investment.
More vulnerable to Takeovers
At worst, a company can become vulnerable to a hostile takeover if a majority of shareholders agree to a bid. With shares being freely transferable, a potential bidder can build up a shareholding in advance of launching a bid attempt.
Where a public limited company is listed, there can be added pressure imposed by the market. The company’s share price represents the value of the company as viewed by the market, and (potential) investors will usually expect a healthy return. As well as dividends paid from profits, there will be a desire for the share price to increase.
This level of emphasis on the share price, usually not so immediate a demand in a private company, can cause the directors to focus almost exclusively on short-term results. They may therefore miss strategic opportunities or threats, thereby not achieving the best for the business in the long-term.
Initial financial commitment is higher
The minimum financial commitment is higher for a public limited company than for a private limited company. In order to trade, the plc must start with at least £50,000 of nominal share capital, at least 25% of which is paid up. That means at least £12,500 must be committed to the business, whereas in a private company a single share of (say) £0.01 could be allotted – and not even paid for on issue!
Associated costs of company formation may also be higher, especially if the company’s requirements are complex. If the company’s shares are to be listed on an exchange, it will typically pay legal and investment professionals to advise and manage the listing process. There will be other costs associated with obtaining a listing.
Difference between a Private and Public Limited Company
Comparison Between Public Company V/S Private Company
|S.No.||PARTICULARS||PUBLIC COMPANY||PRIVATE COMPANY|
|2.||Maximum members||No maximum limit||200|
|3.||Commencement of business||They have to obtain with certificate of incorporation , the certificate of commencement||They have to only obtain certificate of incorporation and no certificate of commencement|
|4.||Minimum subscription||Rs. 500,000||Rs. 100,000|
|5.||Issue of prospectus||Can make prospectus for invitation of its shares to the public. They have to make prospectus or statement in lieu of prospectus for invitation of subscription of shares||No prospectus. As no invitation public is made|
|6.||Transfer of shares||Easily transferrable within public.||Restriction on transfer to the public. Within members is allowed|
|7.||Statutory meeting||They have to hold statutory meeting within 6 months of its commencement of business.||No need to hold statutory meeting.|
|8.||Articles of association||They can adopt table under schedule I of companies act, 2013.||They can make its own articles of association.|
|9.||No. Of directors||3||2|
|10.||Consent of directors||Required in writing||No requirement|
|11.||Qualification shares||A minimum shares is required to qualify as director||No such requirement|
|12.||Retirement of directors||Minimum two third directors retire by rotation||No such compulsory Retirement|
|13.||Name of the company||Must contain ltd at the end||Must contain pvt ltd at the end|
|15.||Inspection of accounts||Open for public inspection.||Not for public inspection.|
|16.||Annual return||They have to file only return and no declaration.||They have to file return with a declaration that no of members does not exceed 200 and no share capital or debenture is issued to the public.|
Looking at the current market and growing economy, forming a public company is a good option. It is always considered an appropriate for the business which has a large amount of capital to invest. By inviting public to subscribe share, it improves the capital of the company. It helps in reducing the overall risk of the company, as capital is invested in the diversified number of securities. It ultimately gives, the growth opportunities to the company.