Public Limited Company
A public company is a company that has permission to issue registered securities to the general public through an initial public offering (IPO) and it is traded on at least one stock exchange market. A public company is not authorised to begin its business operations just upon the grant of the certificate of incorporation. In order to be eligible to run as a public company, it should obtain another document called a trading certificate.
Advantages of a Public Limited Company
Members: For public limited company, it have a minimum of 7 members (maximum unlimited).
Limited liability: The liability of a public company is limited. No shareholder is individually liable for the payment or loss of the company. The public limited company is a separate legal entity, and each shareholder is a part of it to the amount of capital invested.
Board of Directors: A public company is headed by a board of directors. It should have a minimum of 3 and can have a maximum of 15 board of directors. They are elected by the shareholders of the company in annual general meetings. The elected directors act as representatives of the shareholders in managing the company and taking decisions. Having a bigger board of directors therefore benefits all shareholders in terms of transparency as well as fostering a democratic management process.
Transparency: Private limited companies are strictly regulated and are required by law to publish their complete financial statements annually to ensure the true financial position of the company is made clear to their owners (shareholders) and potential investors. This also helps to determine the market value of its shares.
Capital: A public company can raise capital from the public by issuing shares through stock markets. Public companies can also raise capital by issuing bonds and debentures that are unsecured debts issued to a company on the basis of financial performance and integrity of the company.
Transferable shares: A public limited company’s shares are purchased and sold on the market. They are freely transferred among the members and the people trading on stock markets.
Disadvantages of public company
Prospectus: For a public company, issuing prospectus is mandatory because the public is invited to subscribe for the shares of the company.
Expensive: Going public is an expensive and time consuming process. A public company must put its affairs in order and prepare reports and disclosures that match with SEBI regulations concerning initial public offerings (IPO). The owner has to hire specialists like accountants and underwriters to take the company through the process.
Equity Dilution: Any company going public is selling a part of the company’s ownership to strangers. Each bit of ownership that the owner sells comes out of their current equity position. It is not always possible to raise the amount of money that you may need to operate a public corporation from shares, so company owners should hold at least 51 percent of the ownership in their control.
Loss of Management Control: Once a private company goes public, managing the business becomes more complicated. The owner of the company can no longer make decisions independently. Even as a majority shareholder, they are accountable to minority shareholders about how the company is managed. Also, company owners will no longer have total control over the composition of the board of directors since SEBI regulations place restrictions on board composition to ensure the independence of the board from insider impact.
Increased Regulatory Oversight: Going public brings a private company under the supervision of the SEBI and other regulatory authorities that regulate public companies, as well as the stock exchange that has agreed to list the company’s stock. This increase in regulatory oversight significantly influences management of the business.
Enhanced Reporting Requirements: A private company can keep its internal business information private. A public company, however, must make extensive quarterly and annual reports about business operations, financial position, compensation of directors and officers and other internal matters. It loses most privacy rights as a consequence of allowing the public to invest in its stock.
Increased Liability: Taking a private company public increases the potential liability of the company and its officers and directors for mismanagement. By law, a public company has a responsibility to its shareholders to maximize shareholder profits and disclose information about business operations. The company and its management can be sued for self-dealing, making material misrepresentations to shareholders or hiding information that federal securities laws require to be disclosed.
Minimum requirements/Process for registration of Public Limited Companies
There are various rules and regulations prescribed under the companies act, 2013 for the formation of a public limited company. Here is what you should keep in mind when registering a public limited company:
Documents required for incorporating a Public Limited Company:
The Stepwise Process of Limited Company Registration (Brief)
Annual Compliance :
Usually, a company is required to file three forms with ROC:
ROC Form MGT 7:
It contains details of shareholding structure, change in directorship and details of the transfer of shares during the year if any. Due date for ROC Form MGT 7 would be 28th November that is 60 days from the conclusion of AGM.
ROC Form AOC 4:
It contains details and annexure relating to Balance Sheet of the Company, Profit & Loss Account, Compliance Certificate, Registered Office Address, Register of Member, Shares and Debentures details, Debt details and information about the Management of the Company. The due date for ROC Form AOC 4 would be 29th October i.e. 30 days from the conclusion of the AGM.
ROC Form ADT 1:
It is filed for auditor appointment. The due date for ROC Form ADT 1 would be 14th October i.e within 15 days from the conclusion of AGM.
Other compliance :
Commencement of Business (Within 180 Days)
Companies registered in India after November 2019 and having a share capital are required to obtain commencement of business certificate before commencing any business or exercising any borrowing powers. The commencement of business certificate must be obtained within 180 days of incorporation of the company. Failure to obtain commencement of business certificate will lead to a penalty of Rs.50,000 for the company and a penalty of Rs.1000 per day for the Directors for each day of default.
Auditor Appointment (Within 30 Days)
All companies registered in India must appoint a statutory Auditor within 30 days of incorporation. As appointment of auditor is statutory requirement, non – compliance of same can attract severe penalty on company as well as director, But, in case same appointment is not completed within 30 days, appointment can be done at later stage with statutory late fees as prescribed by ROC.
Income Tax Return (30th Sep)
Private limited companies registered in India must file Income Tax Return on or before 30th September. Failure to file income tax return attracts a penalty of Rs.10,000.
DIN eKYC or DIR-3 eKYC form must be filed for all the Directors of the company. In DIR-3 eKYC filing, the Director must provide and verify a unique personal mobile number and personal email address. Failure to file DIN eKYC attract a penalty of Rs.5000 per DIN.
Board Meetings (Within 30 days)
Section 173(1) of the Companies Act, 2013 prescribes that every company shall hold the first meeting of the Board of Directors within 30 days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board. Provided that the Central Government may, by notification, direct that the provisions of this sub-section shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.
Annual General Meeting (Within 180 Days) :
The company must conduct Annual General Meeting at the end of each financial year. The company must conduct an Annual General Meeting at the end of each year, before filing annual return. For newly incorporated companies, the Annual General Meeting should be held within 18 months from date of incorporation or 9 months from the date of closing of financial year, whichever is earlier. Subsequent Annual General Meetings should be held within 6 months from the end of that financial year. In India, normally the financial year starts on April 1st and end on 31st March. So a Company’s annual return would be due on or before September 30th.