According to the Companies Act 2013, a public limited company is a separate legal entity. Further, the members of such a company have limited liability. Also, a public company offers shares to the general public. The shares of such a company are available via an initial public offer (IPO) or in the secondary market. There are several regulations governing the functioning of a public company. In this article, we will look at the features of a public limited company along with some basic requirements for registering a public limited company.
What is a Public Limited Company?
To understand a Public Limited Company, let’s look at the three terms individually:
- Company – A company is a business entity. Further, it is accounted for and taxed separately. Also, a company is an association of people. Further, it can involve itself in business, industrial, or commercial enterprise.
- Limited – In a company, the liability of the members is NOT unlimited. For example, in a sole proprietorship, the owner is liable for all debts of the business. This is unlimited liability. However, in a limited company, the liability is ‘limited’.
- Public – Section 2(71) of the Companies Act,2013 defines a public company. According to this section, a public limited company is a company that is NOT a private limited company*. Even subsidiaries of companies that are NOT private companies are deemed to be public companies.
* A private limited company is a company whose articles of association restrict it from freely transferring shares and disallows people from subscribing to them. Further, you can incorporate a Private Limited Company with a minimum of two directors and two shareholders subscribing to the paid-up capital of the company.
Hence, when we put the three definitions together, we understand a public limited company.
Features of a Public Limited Company
- Paid-up Capital – There is no requirement of a minimum paid-up capital. Hence, you can incorporate a public company with any amount of capital.
- Minimum number of Directors – You need a minimum of 3 directors to incorporate a public company with a maximum of 15 directors. However, no. of directors can exceed 15 after obtaining Special Resolution.
- Minimum number of Shareholders – You need a minimum of 7 members to incorporate a public company.
- Name of the company – Every public company must have the word “Limited” at the end of the company name.
- Transfer of shares – There are no restrictions on the transfer of shares in a public company.
- Liability – The liability of each member of a public company cannot exceed the amount of investment in shares of the member. This limit is non-extendable.
- Issue of securities – There is no restriction on the issue of securities to the public. The company can issue the same via an initial public offer (IPO) or a bonus issue through private placement. Also, the company needs to issue the securities in the Dematerialised format.
- Quorum – Every public company must have at least five members personally present to form a quorum to constitute the meeting if the number of members as on the date of the meeting is not more than one thousand.
- Managerial Remuneration – In a public company, the managerial remuneration paid to the director and manager should not exceed 11% of the net profits of the company subject to other provisions of the law.
Why you should incorporate a public company?
Compared to all other business entities, the compliances, pre, and post-incorporation are the most strict for public companies. The Companies Act 2013, has raised the bar and made the penalties against defaults and offenses even stricter. However, a public company offers many benefits like:
- Limited liability of the members
- A separate legal identity of the company
- The introduction of the Goods and Services Tax (GST) has made public companies more efficient to run. In fact, as the turnover goes beyond a specific threshold limit, payment of GST becomes mandatory.
- It helps in earning the trust of prospective customers since people see a public company as one with legal recognition.
- Public trust translates into investor trust, making it easier to raise funds for the organization in the future.
One of the most important features of a public company is the availability of the option of issuing shares and the opportunity to restructure. However, you must always ensure that you meet all the compliances (tax or legal), in time.
As you can see, a public limited company has a unique set of features and benefits that can work wonders for certain businesses. It is important to assess the needs of your business before deciding on the legal structure of your organization. We hope that this article offered enough insights to help you make that decision. For any queries, we are always here to help. Drop us a line and we will get back to you.