Advantages of Public Limited Company: More companies opt to incorporate as companies limited by shares rather than unlimited business structures such as sole proprietorships, partnerships, limited liability partnerships (LLP), or companies limited by guarantees. In this article, we examine the benefits of one of the most preferred choices of limited companies, namely, Public Limited Companies.
A proper assessment of the benefits of a Public Limited Company will be necessary for entrepreneurs who wish to establish their startup as a Public Limited Company, as well as for an existing business looking forward to getting converted into a Public Limited Company.
A Public Limited Company is one of the many preferred forms of business structures in India. A public limited company is a company incorporated under the Companies Act, 2013. That offers limited liability to its owners and shareholders. Its shares can be traded on public platforms like stock exchange, and are open for sale to the general public as well.
A Public Limited Company is regulated by the Ministry of Corporate Affairs and the Securities and Exchange Board of India (SEBI). It is subject to stringent laws by these regulatory agencies, and is required to regularly update its shareholders of its genuine financial situation.
As a legally incorporated entity, a public limited company has a distinct legal identity, and is entitled to the right to hold properties and assets in its name
A Public Limited Company is generally opted as an organizational structure by large companies, with huge revenue earning potential and a wide range of consumer base, not only in the country of its origin, but also in other foreign nations. The huge preference that a Public Limited Company enjoys among entrepreneurs indicates that it has a wide range of advantages for all its stakeholders.
Raising capital through public issue of shares
The capacity to raise share capital by a public issue of shares is the most obvious benefit of a Public Limited Company, especially when the company is listed on a reputable stock exchange platform. The amount of capital that can be raised is often substantially more than that of a Private Limited Company, where the sale of shares is completely restricted on public platforms. Other than the general public, contributing to the funds of a Public Limited Company on the stock exchange platforms are institutional investors such as mutual funds, hedge funds, and other traders which are also listed on these platforms.
Enhancing diversity of owners and distributing risks
A company must have at least 7 shareholders who have bought its shares in order to get incorporated as a Public Limited Company. However, there is no maximum limit on the number of shareholders that the company can sell its shares to. Moreover, a Public Limited Company not only sells its shares to institutional investors but also to the general public, for which it is listed on publicly accessible stock exchanges platforms. This indicates that a Public Limited Company has the most diverse range of owners or shareholders, and the risks that the company would face in the due course of operations shall be widely distributed between all these shareholders. Contrarily, there are business structures where the adverse risks burden the only owner, or a few number of owners of the business only.
Additional Fundraising possibilities
Companies which usually adopt a Public Limited Company as their business structure conduct large scale operations and hence, have huge potential for growth and expansion. This makes it easy for a Public Limited Company to raise funds not only in the form of equity / share capital, but through multiple other channels like credit from banks and financial companies, bonds, debentures, crowdfunding, etc.
Moreover, the fact that it has its own legal identity and can be listed on stock exchange markets, makes it more credible and reliable for investment. Additionally, the business might be better positioned to negotiate advantageous interest rates and loan payback arrangements.
Enhanced Credibility
Having a Public Limited Company as the organizational structure of your company can add to its stature and reputation. A Public Limited Company exudes an aura in the business world that any other type of company simply cannot, and this can have an impact on how the public perceives the company. This perception of being more established, larger, or more powerful can influence how customers, suppliers, and workers behave.
Since the sale of shares is open to the general public, and the company is listed on a publicly accessible platform like the stock exchange platform, people are highly likely to know about it. The media and financial experts are more likely to notice it. This essentially leads to free advertising or promotion of the company and more people to be aware of the business and its products / services. More sales may result from increased brand recognition.
Reliability and credibility of a Public Limited Company are further enhanced by the following:
- Operating in many regions under a stricter legal environment than private businesses
- Greater funding and investment needs
- Enhanced Transparency
- The indirect endorsement due to listing on a recognized stock exchange platform
Flexibility in Share Transfer
Transferring shares in a Public Limited Company is way easier and more flexible compared to a Private Limited Company. The shares issued by the Public Limited Company can be listed and traded on any stock exchange market. The sale of these shares is open to the general public as well. Moreover, unlike a Private Limited Company, where the shares to be transferred are first offered to the existing shareholders for purchasing, and only if they refuse, the option to transfer it to another investor is considered, a Public Limited Company does not have to follow any such restriction in the transfer of its shares.
Shareholders' varied interests and insights
Depending on the scale of your business, becoming a Public Limited Company is an invitation to partial ownership that can be extended to hundreds or even thousands of people. These people now have a direct involvement in the company’s key decisions, and have the chance to share their ideas based on their expertise in a variety of subjects. This could help in enhancing the efficiency and effectiveness of the company.
Limited Liabilities of Shareholders
Like a Private Limited Company, a Public Limited Company also restricts or limits the liability of its shareholders upto the amount of capital that they have invested in the company. This means that if a Public Limited Company accumulates liabilities like debts in its name, the shareholder shall not be liable to pay more than the unpaid or due amount of the capital he has subscribed to, under any circumstances. This is a huge benefit for the shareholders, compared to other unlimited businesses, where the owner does not have an option but to pay the full amount of liability of the business, sometimes from his personal pocket.
Conclusion
The ability to sell shares on the stock exchange platforms and the high credibility that comes with setting up a Public Limited Company are just a couple of the benefits that Public Limited Companies enjoy. Ultimately, the stability and risks that your business faces, will determine whether or not you decide to opt for a Public Limited Company structure. The benefits of a Public Limited Company can significantly boost your chances of growth and open up new development opportunities for your business, if you feel that your business is well-established and has substantial resources, room for expansion, legal expertise, and strength to bring public figures into asset ownership.