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4What is a Public Limited Company?

A Public Limited Company in layman’s terms is a company formed and by the people and makes profits for the people. Thus, a company that is registered as a Public Limited Company cannot and will not have a specific owner. This makes sure that a one-head monopoly is avoided in the company. Let us take an example of a famous Public Limited Company in India, The State Bank of India. Founded in 1955, as an amalgamation of the three princely state banks in British rule, The State Bank of India is one of the most prominent examples of a Public Limited Company. All the shares of the State Bank of India are listed on the National Stock Exchange and the Bombay Stock Exchange for sale to the public. There is no owner of the State Bank of India and all the profit generated is paid to employees and shareholders as dividends. The presence of the State Bank of India makes sure that the banking sector is free of monopoly by a mogul or one single private bank.

Who is the owner of a public limited company?

The most distinctive aspect of a Public Limited Company is its ownership. In a private company, the owner is either a parent organization or a group of people who founded the company. Unlike private companies, a Public Limited Company is purely founded and owned by the public. Thus, a Public Limited Company will not have an owner but rather it will have shareholders. The management of a Public Limited Company is looked after by a Board of Directors (we shall discuss this in the features of a Public Limited Company).

What are the features of a public limited company?

Let us try to analyze the features of a Public Limited Company to gain better knowledge; Legal Existence: A company that is registered as a Public Limited Company shall have separate legal existence from the members who own the company. This means that if a group of people come together and create a Public Limited Company then once the company is formed, it gains a separate identity. All legal documents like GST invoice, court notices shall be issued in the name of the company and not the owners or the management. Capital: A Public Limited Company has to collect capital for its expenses and procuring its raw materials. Most Public Limited Companies collect capital by selling shares to buyers in the public domain. When you buy a share in a Public Limited Company, you own a certain percentage of the company. The capital generated by selling public shares is called the share capital. Shareholders: A Public Limited Company is owned by shareholders. This means that no person can claim the company as their own private company. But shareholders cannot take part in the management decisions of the company. Their sole role is to elect the managerial committee often the Board of Directors that looks after the major business decisions of the company. When a company is indebted and is liquidated, the shareholders do not have to pay the creditors of the company. Rather they have to pay only the face value of their shares. For example, say you hold a thousand shares in a company each worth ten rupees. If the company goes bankrupt, you will have to only pay the face value of the shares that is; ten thousand rupees. Board of Directors: Almost all companies today, public or private, establish a board of directors to look after major business decisions of the company. The difference here is, the board of directors in a Public Limited Company are selected by the shareholders and they represent these shareholders during meetings with other companies. The decisions taken by the Board of Directors use a majority rule and this ensures unity in the management.

What are the merits of a public limited company?

Public Limited Companies are often the largest companies in a business. Let us analyze a few of the merits of a Public Limited Company; Leadership: As stated earlier, Public Limited Companies have a board of directors. This ensures that the company is led by a consensus rather than the whims of a single leader. The main advantage of having a board of directors is that these directors are selected from the shareholders and by the shareholders. Large Capital: One of the largest advantages of a Public Limited Company is that they can generate huge capital investments. By selling their shares in the public, Public Limited Companies generate a huge capital for their expenses. Once the Initial Public Offering (IPO) is over and the share capital has been generated, Public Limited companies can release bonds and debentures through the stock market to generate additional capital. Thus, Public Limited Companies that have a strong performance can generate greater capital over time. Financials: Public Limited Companies are strictly governed by rules and regulations. Thus, they are required to publish their financial records every year. Unlike private companies, Public Limited Companies have to make sure that their investors know the financial happenings and position of the company. This adds an element of safety to Public Limited Companies and helps them in attracting potential investors. Limited Liability: Shareholders in a Public Limited Company are protected from incurring the company’s losses. What this means is that shareholders have to pay only the face value of the shares they hold in a company if it goes bankrupt. This facet also makes sure that Public Limited Companies are separate entities on their own and can also be sued on their own without the involvement of the shareholders.

What are the demerits of a public limited company?

Though there are many advantages to a Public Limited Company, there are few disadvantages too that we need to discuss; Public Books: On the one hand publishing financial records every year, helps Public Limited Company attract investors but at the same, this also means that their competition knows everything about them. Since the company has gone public, the competition can easily analyze their finance books and see the loss and profit that the company is experiencing. This aspect poses great difficulty to Public Limited Companies. Greedy Shareholders: Often the public has no interest in the working of the company. Investors today want to make an easy buck and this means that they do not pay any attention to the detailed plans a company lays down to expand. Greedy Shareholders take no part in developing these plans and often prove detrimental to the company’s plan. Takeover: Unlike private companies, Public Limited Companies are prone to takeovers since the board of directors is selected by shareholders. A hostile party may buy a huge number of stocks in the company and gain a significant voice in the board of directors. This means that a hostile party can gain ruling command in a company and derail the existing chain of command.

Is there any specific member requirement in a Public limited company?

A company that wants to register itself as a Public Limited Company has to have a minimum of seven members. The maximum limit for the number of members in a Public Limited Company does not exist, unlike Private companies that can have a maximum of two hundred members only.

This gives an advantage to the Public Limited Companies as they can have a huge number of members. Specific employee requirements can further dwell in deeper after commerce courses in Ahmedabad.

What are the requirements for Public Limited Company registration?

In today’s time, the Government of India has made registering Public Limited Companies easier as compared to earlier times. According to the Ministry of Corporate Affairs, there are three mandatory requirements that a company has to fulfill to register itself as a Public Limited Company;

The company must have a minimum of seven share holders.

The company must have a minimum of seven share holders

The company must introduce minimum share capital of Rs 5 Lacs

All sections of the company should have a direct impact on its compliances.

What are the documents required for registration?

There are two sets of documents required for registration, one set for the directors and shareholders and the other set for registering the company office;

Directors/ Shareholders

Copy of PAN Card

Aadhar Card

Address Proof (Bank Statement, Mobile bill, Telephone bill)

Authorization Form

Registered Office

Ownership Proof (Electricity Bill, sale deed, copy of index II, Tax Bill, etc)

Utility Bill (Gas Bill, Electricity Bill)

NOC

What is the process of registering a Public Limited Company?

The process involved in registering a Public Limited Company is;

Identify Seven Shareholders and Three directors (Minimum numbers you may have more)

Obtain a Director Identification Number (DIN): Every director of the company must have a DIN allotted to them by the Ministry of Corporate Affairs.

Obtain a Digital Signature Certificate for Promoter and Directors: This legally allows the promoters to promote the company and recognizes the directors of the company. It also allows the authorities to authenticate the documents being filed.

Identify location and capital of the company

Company name application: The company should apply to the Registrar of Companies, to reserve a unique name for themselves.

Preparation and submission of the Registration documents to the ROC: Registration documents like Memorandum of Association and Articles of Association have to be prepared and submitted to the ROC.

Issuing of the Certificate of Incorporation and allocation of the Corporate Identification Number by the ROC

Filing commencement of Business: The company cannot start its business until the directors have filed a declaration stating that all shareholders have paid the share money within 180 days of incorporation.

Conclusion

Public Limited Companies allows making sure that major sectors like banking, finance stay free of the monopoly of huge private industries. Thus, learning about Public Limited Companies after BCom courses in Ahmedabad proves very beneficial in the longer run. It can help create and build Public Limited Companies that can go on to become leaders in their respective businesses.

Part – iii – Learn Commerce Structures III: Private Limited Company Part – ii – Learn Commerce Structures II: Proprietorship Firm Part – i – Learn Commerce Structures: All About Partnership Firms