If you are someone gearing to start off your entrepreneur journey, you might want to start it either on a smaller scale or on a larger scale. If you manage to get sufficient capital for investment and sufficient number of directors and shareholders, you are probably ready to start off your journey as a Public limited company.
But, what is a public company? A Public limited company is a business entity which is registered under the provisions of Companies Act 2013. A public limited is a company is a company which has at least seven members and at least three directors in its board and not any above limit for the number of members for initiation of a Public limited company.
A public company duly registered under the provisions of Companies Act 2013, enjoys all privileges of a body corporate along with the features of a limited liability. Further, a public company is allowed to raise capital from the stock exchange of India by raising capital from abroad from the public in general, but at the same time it has to comply with multiple government rules & regulations in starting and maintaining a public limited company.
Public Limited Company Registration With Legalmart
If you are an entrepreneur having no idea about the legal formalities of starting a public company but manage to get seven members for ownership purpose, having no idea about the legal procedures and documents required for public company registration, then it is always advised to consult and take assistance of someone who has years of experience in registering a public company because failing to do the same may cause unnecessary hassle and higher costs to you.
Benefits Of Public Limited Company Registration
- BETTER TRANSPARENCY– A public company is allowed to issue securities like shares and debentures after listing them on stock exchange and further quoting prices. Accordingly, more of the public interest in the form of investments is attached to such public companies, the Government demands more transparency from such companies in the form of compliances and intimations about changes from time to time.
- EASIER TRANSFERABILITY OF OWNERSHIP– Under the provisions of Companies Act 2013, there is no upper limit for the number of shareholders in a public company, there is free transferability of the shares in a public company and with no rigid procedures. Any shareholder can transfer his shares for want of money or for taking control or ownership in the company. Every investor in a company has knowledge of the prices of stocks listed and quoted on stock exchange, thus it is easier for anyone to sell or buy shares in the company.
- PERPETUAL SUCCESSION- A public company is a body corporate and there is separation between ownership and management in a company. Being a legal person, it will always remain alive irrespective of death, insanity or insolvency of any or all of its members.
- LIMITED LIABILITY – Again, being a legal person a company has limited liability which means that in the event the business runs into losses, the extent of the bearing of losses shall remain only to the extent of the capital contribution made by them in correspondence to the nominal value of their shares.
- EASIER LOAN APPROVALS & FUNDING– Being larger capital contribution and more members in the company along with the shares being listed in the stock exchange, a public company has greater capital contribution than any other form of entity which further helps them in obtaining loans from banking & financial institutions. Accordingly, they can even enter negotiations to demanding favourable rates of interest and conditions for repayment of loans. Further, they can also issue debt securities for the purpose of extra funds for business expansion purposes.
- FEWER RISKS- Since there are multiple sources of funding and investments in case of a public company, there are lesser risks related to insolvency and business operations shutdown in case of public company.
- VALUE OF SHARES – As the value of shares is an indicator of the profit-level of the company, the value of shares is generally higher in case of a public company.
- BETTER GROWTH AND EXPANSION OPPORTUNITIES– A public company has multiple sources of gaining capital such as fresh issue of shares, issuing debt securities, loan from banks and financial institutions, there is always a strong probability of strong market presence and reputation. Therefore, it is considerably easier for a public company to expand its business operations and get growth opportunities as compared to entities like private companies or LLPs who need to prove the scalability of their businesses for funding and investment purposes.
Disadvantages Of Public Limited Company Registration
- MORE REGULATORY REQUIREMENTS – As aforementioned, in case of a public company there is more public interest attached with the business management decisions and its consequences. Therefore, the Government of India has put more regulatory obligations in case of a public company unlike other business entities.
- HIGHER LEVELS OF TRANSPARENCY REQUIRED- As compared to any other form of business entity, a public company is more under the pressure to ensure transparency and divulge all important events and happenings within the company in the annual report of the company to the shareholders, and failing to do the same can have serious consequences including shutdown of business operations.
- POSSIBILITY OF HOSTILE TAKEOVERS- This is one of the biggest disadvantages of a public company which places it beneath a private company or OPC. A public company is allowed to list its shares in the stock exchange from where the share prices are quoted on the basis of market demand and supply and such shareholders who purchase such shares are entered in the records of the company as members of the company having power to approve/disapprove decisions for the company. However, when a public company new in the business is performing well in the market, its strong competitor may eliminate such public company by making a hostile takeover of the target company by purchasing a large portion of the shares at higher bids in the market and controlling its decision making.
- DISTRIBUTION OF PROFITS- Unlike a private company which can have up to 200 members, there is no utmost limit for the number of members in a public company. Therefore, when shareholders have made capital contributions in the public company and the company earns profits out of it, the company gives returns to its shareholders in the form of dividends. Therefore, if a company decides to give dividends to its shareholders, it means lesser funds available to the company due to distribution of profits among shareholders.
- SLOW DECISIONS – Unlike a sole proprietorship firm or OPC, there are more directors and shareholders in a public company, thus the process of decision making is slower and time-taking. Accordingly, whenever decision –making in the interest of the company is required, the board of directors make a decision and keep it in the front of the shareholders of the company who have the right to approve/disapprove the same, which makes the process tedious and slow.
- OWNERSHIP ISSUES- In a public limited company, shareholders of the company are the true owners of the business and need to be made aware of every happening in the company for approval. However, as the stocks are sold through open stock market, the company needs to constantly take updates about the ownership changes in the shares and update the same in the records of the company.further, shareholders also have the right to inspect the records of the company and ask for certified copies of the documents to later analyse the position of the company in the market.
Read More About: “How to Register Proprietorship Firm In India“
Eligibility Criteria Of Public Limited Company Registration
- Minimum amount of shareholders & directors- A public company needs to have at least three directors and minimum seven members at the time of incorporation of the company. However, there is no upper limit for the number of directors or members a public company can hold. But, a natural person cannot hold directorship in more than 15 companies at once.
- Resident Director: A pubic company can have any number of directors, out of them there must be at least one director who is the resident of India in last 182 days during the immediately preceding year irrespective of their citizenship. The number of days required for the calculation of 182 days could be in phases.
- Capital Requirement: For registration of a public company, there is no particular limit of minimum capital contribution for a business. A member is free to invest any amount in the business as per his financial capability. On the other hand, the applicable government fee for the purpose of registration is calculated on the amount of capital for registration.
- Unique Name of Company: For the purpose of eligibility, the company so proposed should be unique word describing the business with addition of the word “Limited” behind the name chosen for the proposed company. Further, the name so chosen should not be similar to any existing business and should not resemble any business name already in existence. Further, the trade name should also be carefully selected to not to infringe any mark already registered with the Trademark registry.
- Company to pursue activities in objects clause: The proposed company shall have to draw an objective of the main business in the company memorandum. Such business should be for a lawful purpose and not for any illegal purpose.
Documents Required For Public Limited Company Registration
- Proof of Identity of all the proposed members and directors.
- Proof of registered address of all the proposed directors and shareholders.
- PAN Card of the proposed members.
- Electricity/Water Bill of the premised where the business is proposed to be situated.
- No Objection certificate from the owner of the property where business is proposed to be located(in case the property is rented).
- A copy of proposed memorandum & articles of association for the business so proposed.
- DSC (Digital Signature Certificate) & DIN (Director Identification Number) of all the proposed directors.
How To Register a Public Limited Company Registration Onine?
Before initiating the process of registration, it is always advisable to know about all legal requirements for incorporation of a public limited company as provided above. Here is an step-by step description of the processes of registration-
STEP 1: APPLICATION FOR NAME RESERVATION
First of all, the proposed public company needs to make an application for the reservation of name of the company so that no one could pick the name of your company by the time you complete other legal formalities. For this, you need to make an application in the online form SPICE+.
The SPICE+ form will allow you to choose at least two business names as per your preference, after filling of the form and on payment of the applicable govt fee. On successful submission of the name, if the name is unique, the protection shall be allowed for sixty days and you could use the time lag in between to prepare and execute MOA & AOA of the company proposed.
STEP 2- ACQUIRE DIGITAL SIGNATURE CERTIFICATE (DSC)
As per the provisions of the Companies Act 2013, only a natural person could become a director in the company and only such director can apply for a digital signature certificate which will help him to log on to the Ministry of Corporate Affairs(MCA) portal for initiating the process of incorporation.
Similarly, all the proposed members and other directors of the company are required to acquire a DSC on a mandatory basis.
STEP 3: ACQUIREE A DIRECTOR IDENTIFICATION NUMBER (DIN)
The proposed company needs to compulsorily apply for Director Identification number to at least three directors of the company which could be acquired by anyone intending to be appointed and act as a director in a public/private company.
STEP 3: REGISTRATION ON THE MCA PORTAL
After due preparation and execution of documents, the company should appoint an authorized director and submit the concerned SPICe+ form which facilitates process of registration and application for DIN allotment of three directors by logging through the DSC of any one of the proposed directors.
STEP 4: CERTIFICATE OF INCORPORATION
After the due submission of the SPICE + form along with all necessary documents and attachments, the Registrar of companies will go through all the documents and forms. If he is satisfied that all the formalities have been met with, he may issue a certificate of registration which shall be the conclusive evidence of the existence of the company from that day onwards.
Why Choose Legalmart?
Therefore, if you carefully observe the unique features and advantages of a public company, you will probably feel that the public company has far more advantages as compared to some of the disadvantages. However, launching a business in such a large scale is not a easy task, therefore choose Legalmart, an expert assistance website which will provide you end-to-end support in successfully incorporating your public company and start your business in a simple, efficient and quick manner. Good Luck!