A Public Ltd Company is a type of business entity whose shares can be traded publicly through stock exchanges in India. It allows a business entity to access a large number of investors, making it highly convenient for raising capital for the business. This article aims to provide a thorough understanding of the Public Limited Company definition with its meaning, features, advantages and disadvantages so that businesses can make informed decisions whether or not they want to opt for a Public Limited Company.
A Public Limited Company, also known as a PLC, is a type of business entity that publicly trades its shares on stock exchange platforms. As a result, it has access to a vast pool of investors, making it an attractive option for entrepreneurs looking to raise capital. It can have unlimited number of shareholders, and the liability of each shareholder shall be limited to the amount of capital they have invested in the company. Let’s dig a little deeper!
Public Limited Company: Meaning & Definition
A Public Limited Company in India is a type of business entity which is incorporated and therefore operates with a separate legal identity. It is owned by shareholders who invest in the company by purchasing its shares publicly traded on stock exchange platforms.
Public Limited Company Meaning
To understand the Public Limited Company, you must first understand the relevance of the words “Public” and “Limited”. The word “Public” here indicates that the shares issued by a Public Limited Company are listed and open for trade on public platforms like the Stock Exchange Markets. On the other hand, the relevancy of the word “Limited” here is that the company limits the liabilities of all its shareholders to the specific capital they’ve subscribed, or the total worth of the amount of shares they’ve bought in the company.
So, a Public Limited Company is basically an incorporated business structure which limits the liability of its shareholders and trades its shares on Public Stock Exchange Platforms. Now that you know the Public Limited Company meaning, let us understand how it is legally defined.
Public Limited Company Definition
A Public Limited Company is governed by the Companies Act of 2013, which defines it as a company which is not a “private company”, “has a minimum amount of capital as prescribed” and “has a minimum of seven shareholders”. To better understand this, let us go through each of these phrases one by one.
- A Public Limited Company is not a ”Private Company” means that it does not sell its shares through private placement. Moreover, unlike a Private Company, the sale of its shares are not restricted in any way, and anybody among the general public can buy these.
- Public Limited Company has a minimum amount of paid up capital as prescribed under law. Up until 28th May, 2015 this minimum amount was equal to Rs.5 lakhs, but with effect from 29th May, 2015, this requirement was omitted, and since then, there is no minimum requirement of capital per se, set for the establishment of a Public Limited in India.
- Lastly, a Public Limited Company must have at least 7 shareholders. The implication is simple. You cannot set up a Public Limited Company if you have less than 7 shareholders, but there is no cap on the maximum number shareholders it can have.
What Are The Features of a Public Limited Company?
Similar to a private limited company, a public limited company comprises a wide range of features that make it the most suitable choice for large-scale businesses. This company structure not only helps in raising funds from external sources easily but also ensures the transfer of shares freely. Explore more features of a public limited company that are listed below;
- Separate Legal Identity: The public limited company has a separate legal existence apart from its members who compose it.
- Governed by the Companies Act, 2013: Its formation, working, and its winding up, in fact, all its activities are strictly governed by laws, rules, and regulations. The Indian Companies Act, 1956 contains provisions regarding the legal formalities for setting up of a public limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.
- Minimum 7 shareholders: A public limited company must have a minimum of seven members but there is no limit as regards the maximum number.
- Investment through sale of shares: The public limited company collects its capital by the sale of its shares and those who buy the shares are called the members. The amount collected is called the share capital.
- Freely Transferrable Shares: The shares of a public limited company are freely transferable and that too without the prior consent of other shareholders or without subsequent notice to the company.
- Limited Liability for shareholders: The liability of a member of a company is limited to the face value of the shares he owns. Once he has paid the whole of the face value, he has no obligation to contribute anything to pay off the creditors of the company.
- Separation between ownership & management: The shareholders of a company do not have the right to participate in the day-to-day management of the business of a company. This ensures separation of ownership from management. The power of decision making in a company is vested in the Board of Directors, and all policy decisions are taken at the Board level by the majority rule. This ensures a unity of direction in management.
- Perpetual Existence: As a company is an independent legal person, its existence is not affected by the death, retirement or insolvency of any of its shareholders.
How Many Members are Required for Public Company in India?
The requirement of Public Company members is at least 7 in India. Public Limited Company minimum members could be individual or non-individual entities, whether Indian or foreign in origin. All these shareholders must have their signatures on the Company’s Memorandum of Association, as an entity which does not sign the MOA shall not be considered as its shareholder. This is because the MOA is considered as the constitutional document of the company.
What Are The Advantages of Public Limited Company?
Public limited companies have several advantages over other types of business entities. These advantages originate from several Public Limited Company characteristics which make them an attractive option for entrepreneurs and investors looking for a scalable business model that can grow quickly and generate significant returns. Here is a list of all the advantages a Public Company offers to its various stakeholders.
- Greater access to capital: A Public Limited Company can raise capital by issuing shares to the public, which can provide access to a larger pool of investors and a greater amount of funding.
- Limited liability: Shareholders in a public limited company have limited liability, which means that their personal assets are not at risk in case the company faces financial difficulties.
- Professional management: Public limited companies are usually managed by a board of directors, who are professionals with expertise in various areas of business management.
- Transferability of shares: Shares in a public limited company can be easily bought and sold on a stock exchange, providing liquidity and flexibility to investors.
- Brand recognition: Being publicly listed can enhance a company’s brand recognition and reputation, providing a competitive advantage in the market.
- Attracting talent: Public limited companies can offer stock options to their employees, which can be a valuable incentive to attract and retain talent.
- Better access to government schemes: Public limited companies may have better access to government schemes, incentives, and subsidies aimed at promoting economic growth and development.
- Expansion opportunities: Public limited companies can expand their operations through mergers and acquisitions, joint ventures, and other strategic partnerships, which can help to increase their market share and profitability.
What Are The Disadvantages of Public Limited Company?
While Public Limited Companies offer several advantages over other types of business entities, they also come with a range of disadvantages. These disadvantages can make public limited companies less appealing for some entrepreneurs or investors. In this section, we will explore the various disadvantages of a public limited company in more detail. By understanding the potential drawbacks of a public limited company, you can make an informed decision about whether this type of business entity is right for you.
- Increased regulatory compliance: Public limited companies are subject to increased regulatory compliance requirements, including financial reporting, disclosure, and shareholder communication, which can be time-consuming and costly.
- Dilution of ownership: By issuing shares to the public, the ownership of the company can become diluted, leading to a loss of control for the founding members.
- Increased scrutiny: Public limited companies are subject to increased scrutiny from the media, investors, and regulators, which can lead to negative publicity and reputational damage.
- Short-term focus: As publicly traded companies, public limited companies may prioritize short-term results over long-term growth and sustainability to satisfy shareholder expectations.
- Costly to go public: The process of going public can be costly and time-consuming, requiring significant financial and legal resources.
- Pressure to perform: Public limited companies are under constant pressure to perform well and meet shareholder expectations, which can create a stressful work environment for management and employees.
- Vulnerability to hostile takeovers: Public limited companies can be vulnerable to hostile takeovers by competitors or other investors, which can lead to changes in management and strategic direction.
- Limited control over share price: Public limited companies have limited control over their share price, which can be influenced by market conditions, investor sentiment, and external factors beyond their control.
A public limited company means a type of company that has no limit on the maximum number of members or shareholders. These companies are listed on the stock exchange to raise capital from the general public. Gain insights into the public limited company by going through the above post covering the meaning & definition of public limited company, their features and advantages & disadvantages, etc.
FAQs
Q1: What does a public ltd company mean?
A Public Ltd Company means a type of company which is offering its shares to the general public through stock exchanges and has limited liability as well.
Q2: What is the main objective of a Public Limited Company?
The main objective of a public limited company is to maximize the profit of the organization so that its shareholders can receive healthy returns on their investment in the company.
Q3: How many members are there in a public limited company?
In order to start a Public limited company, at least 7 members are required. However, there is no maximum limit for the number of members or shareholders in PLCs.
Q4: Who runs a public limited company?
Public limited companies are managed by the board of directors. However, the shareholders are the owners of PLCs.
Q5: Is it possible to convert a public limited company into a private limited company?
Yes, a public limited company can be changed to a private limited company by filling out the Correction form and submitting it to Companies House. The decision to step back is taken when a public limited company is no longer able to surpass its disadvantages.