What is a Public Limited Company?

This write-up discusses the meaning, process and documents required for incorporation of a Public Limited Company in India. It includes the discussion on the eligibility of Directors and highlights the pros and cons of a Public Limited Company.
Estimated Reading Time: 11 minutes

Introduction 

According to Section 3 (1) (iv) of the Companies Act. 1956, “A public company means a company which is not a Private Company[1].” A Public Limited Company (PUBLIC LIMITED COMPANY) is a distinct business entity that is legally identified. A Public limited company is a firm that offers its shares to be operated on the stock exchange platforms for the public. 

According to the guidelines issued under the company law, it is obligatory for a Public Limited Company to reveal its fiscal/monetary standing and position in the public domain to guarantee transparency. A public limited company is typically instituted for the purpose of serving the public. The main aim of a public limited company is to help people, unlike a private company the primary objective of which is to earn supreme proceeds and revenues.

Characteristics of Public Limited Company

A public limited company is distinct from private limited companies; however, both exists in the market for earning leads and profits. Following are the various distinguishing features of a Public Limited Company:

  • Ownership: The title of a Public Limited Firm lies with two or more shareholders who are the owners of the shares of the company. Government as well as other stakeholders like investors, customers, competitors, etc. plays an active role in the functioning of a public limited company. This is because the primary objective of a public limited company is to ensure the maximum service to people. If ownership is given to any individual, the whole purpose of service to people is defeated.
  • Index of Members: A public limited company is mandated by legal guidelines to maintain an index of all its members with their names, titles as well as other relevant details.
  • Paid Up Capital: It is mandatory for a public limited company to specify a minimum paid-up capital as directed by the company law of the state in which the firm is listed/ registered. As per the Companies Act, 2013, a Public Limited Company in India is required to keep rupees five lacs as a minimum paid-up capital.
  • Perpetual Succession: The existence of a public limited company is not dependent on the death, insolvency, or bankruptcy of any member on the board of the firm. It will continue to exist incessantly until the legal procedure of winding up of the company is completed.
  • Formation: A Public Limited Company can be established after appointment of at least two directors and a person who is qualified to be a company secretary.
  • Directors: A public company is required to have at least three or more directors for its constitution as well as existence and functioning in a business environment. 
  • Name: A public limited company must end its registered name with the use of the word ‘limited’.
  • Limited Liability: The liability of the shareholders of a public limited company is limited to the quantum of investment that they have made in the business in case of losses or debts. Their personal belongings and assets could not be used for covering the losses of the firm or any such costs. Due to this reason, a public limited company is a safer option for investment by people as their assets remain unaffected by the performance or profit-earning potential of the company.
  • Prospectus: It is the legal obligation of a public limited company to issue a prospectus in public domain. A prospectus is the statement of present as well as the future plans of the company. This document acts as a guide for people as it helps them in understanding the company and its purposes to the core. 
  • Abided by Law: A public limited company is required to abide by the principles incorporated in the corporate laws of the state. In case of Public Limited Companies registered in Indian territory, they must follow all the guidelines issued under the Companies Act, 2013. In case of non-compliance, the company will have to face legal consequences in form of fines or even cancellation of the registration of the firm. 
  • Minimum Subscription: A Public Limited Company is mandated by the laws of the land to get at least 90% sum of the shares issued by the firm within a specified period.

Incorporation of a Public Limited Company

A public limited company has a separate identity. It is owned by the public. A public limited company is managed and controlled by a board of directors. This board has a distinct identity that always remain unaffected by the existence or non-existence of the owners of the firm. The firm is required to abide by a lot of rules and regulations that are applicable to it. 

The process of registration of a Public Limited Company in India is very lengthy. It also includes a lot more rules and complications as compared to a private firm. The major necessities for commencement of a public limited company in India are as follows:

Eligibility:

The primary requisites or eligibility criteria for commencing a public limited company in India are as follows:

  • One Resident Director: Out of the three or more directors required to be on the board of a public limited company, one must necessarily be a resident of India.
  • Minimum Seven People: To start a Public Limited Corporation, a minimum number of seven people are required to become directors, shareholders, or both in the company.
  • Unique Name: Every Public Limited Company necessarily needs to have a unique and exclusive name to get it registered with the company registrar. This name should not be used anywhere else or identical to any other company.
  • No Minimum Capital: There is no minimum capital specified for a public limited company to start with its operations. However, there is a limit on. minimum share capital (both authorized and subscribed). It is required to be at least five lakh rupees.

Documents Required

Once the process of registration of a firm has begun, a public limited company requires certain documents that would act as evidence of the directors’ identities and the registered office of the business[6]. These documents are explained in detail below:

Identity Proof: To disclose the identity of the directors of a company, the following documents are required: 

  • Any of the mentioned documents for personal identity proof like voter id, driving license, Aadhaar card or passport
  • It is compulsory for Indian nationals to provide their PAN card details. Likewise, providing passport details is compulsory for foreign nationals 
  • Proof of nationality for foreign nationals
  • Two passport size photographs
  • Resolution of the board of company / LLP for authorization of directors or partners

Address Proof:  The proof of address for verifying the details of the directors involves submission of any one of the documents that are not older than two months. The documents include copy of an electricity bill, mobile bill, telephone bill or a bank statement[7].

Proof of Registered Office: Registered office of the company refers to the place from where the business will be carried on and controlled. For proving the address of the registered office, the following documents are required to be submitted:

  • NOC from the Landlord
  • A copy of Rent Receipts along with either the agreement of rent, conveyance, lease deed, etc. 
  • A copy of gas bill, telephone bill or electricity bill (any one of the mentioned documents) that is compulsorily not older than two months.

Other Documents: A few more documents other than the ones mentioned above are also required to be submitted to complete the process. The following are some other important documents are required to be provided to the registrar under specific conditions or otherwise:

  • Digital Signature Certificate (DSC) which is signed by the directors as well as the shareholders of the company.
  • If the company has foreign directors, all the submitted documents should necessarily meet the following requirements:
  • Notarized, if the director is a resident of one of the Commonwealth countries
  • Notarized & Apostilled; if the director is residing in a country which is a signatory to Hague convention
  • Notarized & Consultative if the director does not belong to either of the above-mentioned categories.

Registration Procedure of Public Limited Company

By now, we have already gathered the basic knowledge about the requirements for registration of a public limited company in India. We also know the documents that are required to be produced before the registrar for the company to commence its operations. In the further sections, we shall be dealing with the Procedure that has to be followed for registration of a public limited company. The procedure that must be followed is: 

Reservation of the Name of the company

The company is required to get its name approved under the Companies Act, 2013.  This is valid up to only twenty days from the date of such approval.

While going for reserving a name, a company can recommend and make an application for only two names at once. It can go for resubmission (RSUB) of either of the names under Reserving Unique Names (RUN) web service.

Digital Signature Certificate (DSC) of Director

 For filing the online application form for registration of a public limited company in India, the signatures of the directors and the shareholders are required supported by the DSC.

DSC can be reserved by applying for the same with attached identity proof, proof of address, and photographs of the individual signatories.

Obtaining the Director Identification Number (DIN)

The directors are required to apply for a Director Identification Number attached with the proof of address, identity proof attested by any CS, CMA or CA.

The Registrar of Companies (ROC) is in charge for allotting a unique identification number which is known as Directors Identification Number (DIN). DIN is a mandatory identification number required to become an official director in the territory of India.

Approval from Other Authorities

The applicant is required to take and furnish the sanction from the corresponding departments, appropriate authorities, regulatory bodies as well as the ministry of Central or State Government depending entirely on the nature and type of business and the labor, to the Registrar of Companies.

Submission of the documents

 An application for registration of the public limited company supported by all the necessary declarations, affidavits, Memorandum and Article of Associations must be submitted to the Registrar of Companies.

Certificate of Incorporation

 A certificate of registration of the company, also known as the certificate of incorporation, is issued by the Registrar of Companies after receiving and inspecting all the applications and attached documents. The activities of the Public limited company can be now commenced under the rules and regulations of the companies act, 2013.

PAN & TAN of the Company

 Along with the certificate of incorporation of the company, the applicant is also required to apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) under the name of the company. It is issued with and mentioned in the certificate of incorporation.

Opening of Bank Account

 After successfully receiving the certificate of Incorporation, the public limited company is compulsorily required under the provisions of the companies act, 2013, to open a current account in the name of the company with any bank, upon the submission of the certificate of incorporation and the other vital documents. This account is going to be the official bank account for performing all the financial transactions of the public limited company. 

Advantages of Public Limited Company (PLC)

The public limited companies have been incorporated for the benefit of people. Due to this, the public limited companies have been playing a major role in revival of the economy of the country. In addition, these company also help in revival of the financial condition of the country, making these companies absolute assets of any nation. 

The various benefits for both, the incorporators as well as the public of a public limited company are as follows:

  • High Credibility: Investments made in public limited companies are more reliable and trustworthy, according to the investors. This increases the credibility of this form of business organization. The investments in public limited firms always bear higher returns which further adds to the GDP as well as development of the country. 
  • Tax Efficient: Various tax benefits like tax-deductible costs and other allowances are enjoyed by a Public limited company. On paying off the corporation tax, the company is saved from paying high-income tax.  
  • Limited Liability: The most important benefit of being a part of a public limited company is its limited liability. The shareholders are not liable to pay the company’s debts or losses beyond their investment value in case of insolvency or bankruptcy.
  • Additional Capital: To meet the additional requirements of capital in a public limited company, Initial Public Offering (IPO) is one of the sources. 
  • Expert Board of Directors: As compared to a private company, a public limited company is efficiently managed by a board of directors which is made of expert and talented people.
  • Prospects of Growth and Expansion: For procuring additional assets for the company, issue of shares could be made. This provides the financial independency and strength to the public limited company and improves the scope of growth and expansion.
  • Easy Share Trading: The shares of a public limited company can be easily traded on the stock exchange market. Therefore, it is more convenient for the investors and shareholders to become a part of the company.
  • Risk Spreading: There are many shareholders who own small portions in the company’s capital, the risk of loss and insolvency is also widespread among all of them.

Disadvantages of Public Limited Company (PLC)

Even though public limited company has many benefits for a businessman and is an excellent option for the fresh entrepreneurs who lack capital and necessary expertise for starting a business, it also has certain disadvantages making it inappropriate for business aspirants. 

The limitations of a public limited company as a form of business organization are as follows:

  • More Regulations: A public limited company must abide by all the rules and regulations regarding its operations. Even a small deviation might result in legal sanctions. This makes it difficult for the managers of the company. 
  • Loss of Ownership: A company can start its operations only after the shareholders have provided the funds. This leads to loss of ownership and decision-making authority in a firm. 
  • Lack of Control: The loss of ownership over the assets of the company leads to the loss of control over the decision-making authority of the company.
  • Disclosure of Company’s Financial Position: A public company could not keep its financial position in secret. It is bound to disclose its financial status along with required financial statements and documents. 
  • Profit-Sharing: The profits of a public limited company must be shared among many people. This makes it an inappropriate form for people who want to earn huge money in small period. 

Conclusion

A public limited company is recognized to produce capital from exterior sources, i.e. the public for commencing a business, business expansion, technological advancement. global expansion, etc.

But a public limited company is more suitable only to the large organizations which have a comprehensive perspective and higher growth possibilities, rather than a small shop located next door.


[1] Companies Act, 2013

[2] Marshal Hargrave, Public limited company, PLC, INVESTOPEDIA, Jul. 19, 2020, https://www.investopedia.com/terms/p/plc.asp

[3] Public limited company, CLEARTAX, Jun 05, 2020 07:23:24 PM, https://cleartax.in/s/public-limited-company-india/

[5] Public limited company, FINTAX, https://www.fintaxx.in/service/start-a-business/public-limited-company-plc-incorporation-in-india

[6] Harshita Pathak, List of documents required to register a company, INDIA TODAY, Nov. 1, 2019.

[9] Satyendra Mishra, Procedure for registration of public limited company, EMPRESSALEGAL, Mar. 16, 2017. https://www.empressalegal.com/full-blog-post?blog_id=16

[13] Public limited company, COMPANIESINN, https://companiesinn.com/start-business/company-registration-public-limited

[15] Karan Garg, Advantages and Disadvantages of Public Limited company, ITSLYF, Feb. 14, 2018. https://www.itslyf.com/advantages-and-disadvantages-of-public-limited-company/

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