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PUBLIC LIMITED COMPANY

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PUBLIC LIMITED COMPANY

Public Limited Companies (PLCs) are a type of corporate structure that works well for large-scale activities in India. In India, entrepreneurs who intend to operate their businesses on a huge scale can register a Public Limited Company. PLCs can raise money from the public by selling shares on stock exchanges, unlike private corporations. They can now access a larger pool of funding for expansion as a result. In India, a public limited company has limited liability along with all the benefits of a corporate entity. To receive all the benefits, entrepreneurs and prospective business owners need to comprehend what a public limited company is and the registration procedure. The formation and operation of a public limited company are governed by the Companies Act, 2013 (the "Act"). A public limited corporation has limited liability and sells shares to the general public. Anybody can purchase its stock, either privately through an IPO or through stock market transactions. It must disclose to its shareholders its actual financial health and is subject to strict rules and regulations.

Types of Public Limited Company

Listed Company

The shares of this kind of public limited corporation are listed and traded on one or more stock exchanges. More liquidity and exposure to a wider range of investors are made possible by this accessibility, which enables the general public and different financial institutions to purchase and sell the company's shares.

Unlisted Company

An unlisted public limited company's shares are not traded on any stock exchange, in contrast to their listed counterparts. Consequently, the corporation does not face the same amount of public scrutiny or regulatory requirements as a listed company, and its shares are not as freely transferable. Businesses looking to gain access to a wider range of shareholders without having to deal with the hassles of full public trading might find this type of PLC appealing.

Features of Public Limited Company

Directors 

In accordance with the Companies Act of 2013, a public limited company must have a minimum of three directors and a maximum of fifteen.

Restricted Liability

Each shareholder has a restricted amount of obligation. In other words, unlike partnerships and sole proprietorships, where the partners and business owners are jointly and severally liable for the debts of the business, a shareholder of a public limited company is not personally liable for any loss or debts of the company for any amount greater than the amount they invested.This feature of a public limited company, however, does not grant shareholders any protection. If the shareholders commit crimes, they will be held accountable.

Share Capital

There is no minimum paid-up capital requirement for a public limited company. It should, however, have a minimum of Rs. 1 lakh authorized share capital.

Prospectus

Public limited companies are required by the Act to publish a prospectus. A public limited company will provide its public with a prospectus, which is a detailed report on the firm's operations. Private limited companies, however, are not covered by these clauses. This is a result of private limited companies failing to get subscriptions from the general public.

Benefits of Public Limited Company

Obtaining funds by issuing shares to the general public

The opportunity to raise share capital is by far the most evident benefit of being a public limited company. When a business is listed on a reputable exchange, it has the most options to promote shares. A public limited company may sell its shares to the general public and anyone may invest money, subject to certain limitations. As a result, the amount of capital that can be obtained is usually far greater than that of a private limited company. Additionally, shares listed on an exchange may draw investment from institutional traders, hedge funds, and mutual funds.

Expanding the number of shareholders and distributing risk

The chance to distribute the risk of business ownership among many shareholders is provided by making shares available to the general public. This would make it possible for the company's original investors to sell some of their own stock at a profit while keeping a sizeable portion of the business. There are some benefits to raising money from a variety of investors rather than depending just on one or two "angel investors," as many private businesses will do in order to support expansion. An angel investor could contribute a significant sum of money and experience. The creators, however, might not feel at ease with the degree of control over the company's course that the angel would frequently want.

Additional financial opportunities

A public limited business will frequently be in a better position when considering alternative sources of funding in addition to share capital. Public limited companies are subject to additional requirements. There will be extra criteria for businesses that keep their listings on stock exchanges. When issuing corporate debt, a company's creditworthiness may be enhanced by these extra compliance requirements. Consequently, this will lower the return that the business must provide to investors. A public limited business, especially one that is listed, may be more likely to receive financing from banks and other financial organizations. Additionally, the business might be in a stronger position to bargain for favourable loan conditions and interest rates.

Possibilities for growth and expansion

The ability to raise money is valuable only if it can be used to support the company. A public company may be better able to do the following thanks to the greater funding that may be available to it:
i) Go after new endeavours, goods, or markets.
ii) Invest in capital projects to help the business grow.
iii) Make purchases (either with cash or by distributing shares to the target company's owners).
iv) Provide funding for research and development.
v) Pay off current debt (or get better terms on new debt to replace old debt).
vi) Develop naturally

Confidence and a distinguished profile

Adding "plc" to the end of the name of the company can enhance importance and reputation, whether it is earned or not. A public limited business has a certain prestige that its private company equivalent just lacks.
This may affect how people see the company. Customers, suppliers, and employees may behave differently as a result of this perception of being more established, larger, or more powerful—even if it is frequently more imagined than genuine.
If the company is open to the public, more individuals will probably know about it. If a company is listed on a stock exchange, that is especially true. The media and financial experts are more likely to take notice of it in that scenario. Since this is essentially free publicity, more people will be aware of the business and its offerings. Increased revenue might result from improved brand recognition. Additionally, it might increase your visibility to important possible business partners. Some areas which strengthens credibility and confidence are-
i) Operating under a more stringent legal framework than private companies in numerous areas strengthens credibility and confidence.
ii) Increased requirements for share capital
iii) Increased openness (for instance, in the mandatory accounting form)
iv) The implicit approval of listed companies' shares being listed on a reputable exchange

Shares' transferability

Compared to their private company, shares of a public limited company are easier to transfer. This implies that liquidity benefits owners. In general, it will be simpler for current and prospective shareholders to transfer firm shares if they are mentioned on a stock exchange. Nonetheless, the market still depends on the availability of interested buyers and sellers, and trading in many publicly traded companies is still rare.
The stockholders may find solace in the notion that they are less obligated to stay with the company. This could benefit the business by increasing initial investment interest.
In private companies, there are frequently additional limits on the transferability of shares. Without these, it's also simpler to handle circumstances like a shareholder passing away, enabling shares to be transferred in accordance with any will's provisions.

Exit Plan

If the founders decide they want to leave the company in the future, going public may increase their alternatives. Potential suitors may be more likely to make an offer if the shares are more transferable and the company and its performance are more visible.

Drawbacks of public limited company

Extra legal requirements

The legal and regulatory standards for a public limited company are more stringent than those for private limited corporations in order to better protect shareholders. For instance, further limitations consist of:
i) Before the business can trade, Companies House must issue a trading certificate. A private corporation is exempt from this obligation.
ii) The requirement for a minimum of two directors. In a private firm, only one is necessary.
iii) There are stricter regulations pertaining to director loans.
iv) It is necessary to designate a corporate secretary who is appropriately qualified. For a private corporation, this appointment is optional.
v) The criteria for corporation accounts are more transparent. Additionally, they ought to be generated within six months after the financial year's conclusion. There are nine months available for private businesses.
vi) AGMs are required, although in a private corporation, resolutions are more frequently used to make decisions.
vii) The company's share capital is subject to a number of other limitations, including restrictions on dividends and pre-emption rights.

Increased transparency is necessary.

Compared to other company forms, limited companies, whether private or public, have more information in the public domain that is accessible through MCA portal. However, public companies are supposed to have a far higher level of transparency. Accounts of public limited companies must be audited. Additionally, they typically cannot file abridged accounts, but smaller private companies can. A public limited company must reveal more specific information about the company and its performance in order to comply with the fuller form of accounts. This data is then accessible to competitors and everyone else who wants to access it. Analysts frequently examine public limited companies' financial statements more closely. The media is more likely to react on them, and not all of that discussion will be favourable or welcome.

Problems with ownership and control

In a private limited company, the directors or founders will usually know the shareholders. A private company will frequently choose who is allowed to become a shareholder. This can guarantee that prospective investors agree with the company's current goals and intentions. When a fresh share issue is made, a shareholder passes away, or a shareholder wishes to transfer their shares, pre-emption rights can be used to keep current shareholders in control of the business. It is far more difficult to regulate who owns stock in a public limited company and to whom the directors are ultimately answerable. Thus, there is a chance that the original directors or owners may no longer have authority over the company's course. Managing shareholder conflicts can be challenging. The founders might have to spend a lot more effort controlling the expectations of shareholders. The impact of institutional stockholders might be very strong. In exchange for their investment, they frequently anticipate consultation and the adoption of specific policies or standards.

More dependent on acquisitions

If a majority of shareholders accept a deal, a company may, at worst, be exposed to a hostile takeover. Because shares are freely transferable, a prospective bidder can accumulate shares before making a bid effort.

Being short-term

The market may exert additional pressure on a public limited company that is listed. The market's assessment of the company's worth is reflected in the share price. Typically, investors anticipate a healthy return. There will be a desire for the share price to rise in addition to dividends paid from profits.

The directors may become almost entirely preoccupied with short-term outcomes as a result of this degree of attention to the share price. As a result, they can overlook dangers or strategic opportunities, which would prevent them from doing what would be best for the company in the long run. Even when a current share price is accessible, it is typically less of a focus in private companies.

  • FAQ
1. What is a Public Limited Company?

A Public Limited Company (PLC) is a business with limited liability that sells its shares to the general public. It can raise money from the general public by issuing shares and debentures, and it needs to have a minimum of seven members.

i) Minimum Shareholders: A PLC can have as few as seven shareholders, but there is no upper limit.
ii) A minimum of three directors is required for the firm.
iii) The liability of shareholders is restricted to the outstanding balance on their shares.
iv) Public Listing: The stock exchange may list a PLC.
v) Regulatory Oversight: The Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) oversee PLCs.

i) Obtaining the proposed directors' Director Identification Number (DIN) and Digital Signature Certificate (DSC) is one step in the procedure.
ii) Name Approval: submitting a request to the Registrar of Companies (ROC) for the company's name.
iii) The drafting of the articles of association and memorandum.
iv) Filing with the ROC: Sending the incorporation application (Form SPICe) to the ROC together with the required paperwork and payment.
v) Certificate of Incorporation: A Certificate of Incorporation is granted following ROC approval of the application.

i) A Public Limited Company is required to have an Annual General Meeting (AGM) within six months of the conclusion of each fiscal year.
ii) Financial Statement Filing: The Registrar of Companies (ROC) must receive the company's yearly financial statements, which include the balance sheet and profit and loss account.
iii) Board Meetings: Every year, there must be at least four board meetings.
iv) Audit: A certified chartered accountant must conduct an audit of the company's financial records.
v) Public Disclosure: Businesses are required to provide stakeholders with access to their financial data, corporate governance procedures, and other important company information.

i) Voting Rights: At the AGM, shareholders are entitled to cast votes on important issues.
ii) Dividends: If the company declares dividends, shareholders are entitled to receive them.
iii) Right to Transfer Shares: In accordance with the terms of the articles of association, shareholders may assign their shares to third persons.
iv) Right to Information: Reports, financial statements, and other important information about the business must be sent to shareholders.

i) Equity Shares have voting rights and signify ownership in the business.
ii) Preference shares typically do not have voting rights, but they do have preferential rights with regard to dividend and capital return.

i) A public limited company is governed by SEBI, has a minimum of seven members, and is able to issue its shares to the general public.
ii) A private limited company is governed by the Ministry of Corporate Affairs (MCA), has a maximum of 200 members, and is not permitted to offer shares to the general public.

The Board of Directors is in charge of:
i)Supervising the company's operations and management.
ii) Endorsing business plans and regulations.
iii)Ensuring adherence to legal and regulatory mandates.
iv) Protecting stakeholders' and shareholders' interests.
v) Selecting important management staff.

The auditor's duties include checking the company's financial statements for accuracy and compliance with relevant accounting rules. Offering an unbiased assessment of the company's financial situation. Reporting any problems or anomalies in the financial records of the business.

i) Financial penalties or fines are examples of sanctions for noncompliance.
ii) Directors of companies that commit fraud or misrepresentation may be imprisoned.
iii) Directors' disqualification.
iv) The company's business licenses may be revoked or suspended.

One way to dissolve a public limited company is to:
i) Voluntary Winding Up: The company's assets are liquidated when the shareholders adopt a special resolution to wind it up.
ii) Compulsory Winding Up: In some situations, like as insolvency or noncompliance with the law, a court order initiates this process.

A company secretary is in charge of making sure
i) The business conforms with all applicable laws and regulations.
ii) Keeping the company's legal documents up to date.
iii) Overseeing resolutions, shareholder meetings, and correspondence with the Registrar of Companies (ROC).
iv) Offering governance advice to the board of directors.