A Public Limited Company is usually preferred by large businesses where the scale of operations is expanded to the domestic as well as the international markets. This is because it is way easier to raise funds for a Public Limited Company as unlike a private limited company, these companies are listed on the stock exchange platforms, and their shares are open for sale to the general public.
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So startups which are starting small but have the vision to make it big in the future can get incorporated as a Public Limited Company, and raise huge amounts of funds for their startups by getting listed on public platforms like Stock Exchange Platforms.
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
Features of Public Limited Companies
A Public Limited Company has all the basic features that any other limited company has. These include limited liability for shareholders, mandatory requirement of registration, company as a distinct legal entity, and separation between management and ownership. However, there are certain features that are unique to a Public Limited Company. We have listed below all the features of a Public Limited Company.
- Number of Shareholders: To set up a Public Limited Company, you must have at least 7 shareholders. However, the Companies Act or any other relevant statute does not place a maximum limit on the number of shareholders that a Public Limited Company can have.
- Separation between Management and Ownership: Unlike businesses like Sole Proprietorships and Partnership Firms, where the owner is solely responsible for controlling the management of the business, the owner or shareholder of a Public Limited Company does not get involved in the management of the company at all. For this purpose, the owners appoint directors of the company who collectively form the Board of Directors of the company. All key managerial decisions of a company are made at the meetings held by the Board of Directors.
- Board of Directors: A Public Limited Company must have at least three directors to control its management, according to the Companies Act, 2013. However, this number can be extended upto 15.
- Company as a distinct legal entity: A Public Limited Company must get registered or incorporated with the Registrar of Companies in the manner prescribed in the Companies Act, 2013. As soon as it gets incorporated, the company gains a legal identity of its own, distinct from the identity of its shareholders or owners.
- Limited liability for shareholders: The relevance of the word “Limited” in a Limited Company is that the liability of its owners is restricted to the amount of the capital he has subscribed to. Under any circumstances, in order to pay off the liabilities in the name of the company, the shareholders will not have to pay any amount exceeding the worth of shares that they hold.
- Transferability of shares: Public Limited Companies that are listed on stock exchange platforms can trade their shares to all other listed entities on this platform. The sale of such shares are also open to the listed individuals, in addition to listed organizations on such platforms.
- The prospectus of the company: All Public Limited Companies must publish their company’s prospectus containing all its necessary details. Note that this is only mandatory for public companies as they trade their shares with the general public, and need to be more transparent than all other types of companies.
- Perpetual Existence: A Public Limited Company can exist beyond the life of its shareholders. Upon the death or permanent departure of any of the shareholders of a Public Limited Company, the shares he held are simply traded or transferred to a new shareholder for replacing the departed shareholder.
Minimum Requirements for Public Limited Company
Before you begin the formation of a Public Limited Company, you must fulfill a certain set of conditions without which the establishment and incorporation of your company is not possible. We have mentioned all these conditions below.
- To form a Public Limited Company, you need at least seven shareholders.
- Before incorporating your public limited company, the shareholders must appoint at least three directors to control the management of the company.
- To sign the application for incorporation of your company digitally, the authorized director needs a Digital Signature Certificate (DSC).
- All the current directors of a company must have a Director Identification Number issued by the Ministry of Corporate Affairs.
- Prepare and arrange all the other documents necessary for company registration. We have mentioned the complete list of all these documents in the next section.
Documents Required for Public Limited Company Registration
Documentation is the most important aspect of company incorporation, such that if the application for company registration misses any one of these documents or if any of these documents are filed in the incorrect format, it can potentially lead to a complete rejection of your application. Follow the table below and refer to the complete list of documents required for public limited company registration.
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Public Limited Company Registration Process Step by Step
After you have fulfilled all the prerequisite conditions and arranged all the documentation required for company registration, you can finally begin the procedure for company registration. We have mentioned the entire procedure for incorporating a Public Limited Company step by step.
Step 1: Obtain DSC and DIN
Obtaining a director’s Digital Signature Certificate should be one of the first tasks that need to be completed. A Digital Signature Certificate is used for digitally signing the online application for company registration. This crucial document is issued by various Certifying Agencies across India, licensed for the purpose by the Ministry of Corporate Affairs.
Additionally, all current directors of a Public Limited Company must have a Director Identification Number and all prospective directors must apply for it, as no individual can get appointed as the director of a company unless he has a Director Identification Number. Directors can apply for a DIN either through the SPICe+ application or the DIR 3 form.
Step 2: Select and Reserve the company’s name
The name of a Public Limited Company must be unique and communicative of its brand and business activity. Moreover, the Companies Act, the Company (Incorporation) Rules, the Trademark Act, and the Names and Emblems Act, lay down a set of mandatory guidelines that are required to be followed while naming a company. The name of a company must not be similar or identical to the name of an existing company / LLP, or an applied or registered trademark. To get a complete overview, read our article on name approval guidelines.
Once you’ve selected a valid name for the company, you must reserve it with the Registrar of Companies, to prevent its misuse and plagiarism by other business entities. For this, all you need to do is avail our services of company name approval and reservation, where we will not only search the validity of the names proposed by you, but also apply for its reservation in the RUN (Reserve Unique Name) or PART A of the SPICe+ applications.
Step 3: Submitting the SPICe+ form
After approving the name of a Public Limited Company, you can proceed with its incorporation. To apply for the incorporation of the company, you are required to fill out the online SPICe+ application available on the official website of MCA. The application is divided into two parts- PART A for the name reservation and PART B for company incorporation. The application is filled out and signed by any one director of the company, and submitted to the ROC along with the prescribed set of documents attached with it.
Step 4: An incorporation certificate
The ROC, after receiving the application for incorporation, verifies all the details and documents furnished in it. Only after the ROC is satisfied with the authenticity of such details and documents, he shall register the Public Limited Company, and issue a Certificate of Incorporation to the company as a conclusive proof of such registration. Additionally, the ROC also allots a Corporate Identification Number as the unique identity of the company.
Step 5: Obtaining a firm PAN and TAN
Immediately after the Certificate of Incorporation is issued to the company by the ROC, the Ministry of Finance issues the PAN and TAN to the company. While a PAN is a necessary document for tax payments and compliances, TAN is required to entitle the company for deducting and collecting taxes at source.
Step 6: Filing Commencement for Business Declaration
A Public Limited Company can commence business operations before, during or after its incorporation. However, if it has not commenced its business operations even after its incorporation, the law provides a maximum window of 6 months from the date of issuance of Certificate of Incorporation, within which the company must begin its business activities and intimate the same to the ROC in Form INC 20A. If the 6 months window expires without the company commencing its business activities, it stands the risk of being struck off from the Register of the ROC.
Conclusion
A Public Limited Company is expected to raise huge funds from investors and the general public for starting a new business, expanding an existing one, or investing in cutting-edge research and development for enhancing the growth of the business. This is exactly why a Public Limited Company is best suited for large businesses with high scale of business operations and high hopes of having a global reach. So, if you want to own a company with restricted liabilities and responsibilities and earn lots of profits, a public limited company can be your best choice.