Public Limited Company is an entity which has to be differentiated from a private limited company. The requirement for having a specific amount of shareholders and directors for a public limit company is mandatory. The minimum amount of shareholders and directors of a public limited company is seven and three, respectively.
A public limited company is an entity that has its shares listed in a public stock exchange. An individual going for public limited company registration must differentiate the meaning of public limited company from a private limited company. Shares are offered in the stock exchange to raise money. An offering of shares in a stock exchange for the first time by a company is known as a primary offering. Public companies can go for secondary offerings based on the requirements. However, these offerings can only be given to a particular class of shareholders known as preference shareholders.
Under section 2(71) of the Companies Act, 2013, a public company is understood as an entity which is not classified as a private limited company. Apart from this, the minimum paid-up share capital of a public company is prescribed as per the requirement of the companies act. A public company can also be understood as an entity which is not a subsidiary of a private limited company.
Usually, these forms of business structures are considered by companies that have a large form of infrastructural plans. Some examples of public companies would include Biotechnology Companies and Information Technology Companies. These companies usually raise capital through primary and secondary issues, apart from securing regular profits.
Like private limited companies, public limited companies are regulated by the Companies Act, 2013 and previous company law 1956.
The meaning of a public company is present under the Companies Act, 2013. As per section 2(71), a public company is an entity which does not have the meaning of a private company. Apart from this, the share capital of the public company can be changed. A public company does not need to have a specific amount of share capital.
The structure of the public company allows it to raise some form of finance through primary and secondary issues. When going for a primary issue, a prospectus is offered to the public. Under section 2(70) of the Companies Act 2013, a prospectus can be understood as a Document which includes a notice or an invitation to the public to subscribe to the shares of the company.
Hence when the company issues a prospectus to the public, it is an invitation to the public to subscribe to the shares of the company.
Minimum three directors and seven shareholders or members are required for a public limited company.
As per the Companies (Amendment) Act, 2015, there is no requirement for the company to have a minimum amount of share capital.
When it comes to registration of shares in a public stock exchange, then compliance has to be maintained by the public company. For instance, when listing shares in the stock exchange compliances has to be maintained as per the rules of the listing agreement.
The public company must also comply with the requirements of the SEBI (LODR) Regulations, 2015.
A subsidiary of a public company is also treated as a public limited company. This would be considered even if the company is a private company.
Public Limited Company Registration is beneficial for the following reasons:
Shares are legal Documents which can be transferred as per the Indian Contract Act, 1872. Under the Companies Act, 2013, these instruments can be transferred easily with minimum compliance requirements. Apart from this, a listing of shares in a stock exchange, make it easier for transfer of shares from one party to another.
In the eyes of the law, public companies are reputed when it comes to borrowing money from banks and other financial institutions. An added advantage of being a public company would give the company recognition.
The principle of separate legal entity is enjoyed by the directors and shareholders (members) of a public limited company. This means that the liability of the members and directors is only limited to a specific amount. Creditors cannot approach the members in case of any debts owed by the public company.
Shares of a public company can be listed in a stock exchange. However, compliance has to be followed by the public company in listing its shares in a stock exchange. Through this process, the public company can raise secondary finance. Hence an applicant must consider the above when going for public limited company registration.
The following criteria are required by the entity to be eligible to be registered as a public company:
Like a private limited company, a public limited company must have a minimum amount of shareholders. As per the requirements of the Companies Act, 2013 the minimum amount of shareholders for a public limited company is seven. There could be penalties imposed if compliance is not met with the requirement of the number of shareholders of the company.
Every Company is required to have a minimum number of directors. Be it a private company or a public company, it is a statutory requirement for the company to have a minimum amount of directors. Under Section 149 to 172 deals with the requirement for the appointment of directors under the Companies Act, 2013. Hence a public limited company must have a minimum of three directors on the board. Apart from this, there is a requirement for appointment of independent directors under the Companies Act, 2013. This requirement is present under section 149(4) of the Companies Act, 2013. Hence a public company has to have directors who are classified as independent directors and executive directors.
This is one of the important requirement for forming a public limited company. An individual or entrepreneur going for public limited company registration must carry out the formalities and apply for the digital signature certificate. This requirement is needed for at least one director in the public company.
A digital signature certificate will allow the applicant to sign Documents in electronic form. Apart from this, Documents are signed through this method can be delivered electronically. The requirement of a DSC is mandatory as per the law.
DIN is an abbreviation for a director identification number. Under section 153 and 154 of the Companies Act, 2013, this number is allocated to a director. A director identification number (DIN) is an eight-digit number allocated to the director when the company recruits them. The application for the DIN has to be filed in accordance with the provisions of FORM- DIR 3. However, the above requirement is simplified, and directors would receive the DIN number through filing SPICe form with the MCA. Through this method, it is become straightforward to secure the DIN.
The memorandum of association of the company contains different clauses. Some of the clauses included are the name clause and objects clause. The activities of the organisation must be under the objects clause filed with the registrar of companies. However, there are specific instances where the activities carried out by an entity can be incidental to the main objects. Hence, the company must ensure to carry out activities which are present in the objects clause of the organisation.
Once all the formalities of the company are fulfilled, all the Documents must be submitted by the company. These Documents include the incorporation Documents, shareholders certifications, Articles of Association and Memorandum of Association. Once these Documents are submitted to the MCA and ROC, the public limited company registration process is almost complete.
The process for public limited company registration is similar to private company registration. The following steps are required to be followed for public limited company registration:
Obtain DSC and DIN for Directors
Name Approval through RUN or SPICe+ Part A
Drafting of Memorandum and Articles of Association
Filing of incorporation forms (SPICe+ Part B) with MCA
Issuance of Certificate of Incorporation with PAN and TAN
When critically analysing the differences between both the entities, the following can be understood:
| Difference | Private Limited Company | Public Limited Company Registration |
|---|---|---|
| Incorporation | Online and Offline Mode | Online and Offline Mode |
| Directors | Two directors have required for a setting up a private limited company. | Three directors are required for the public limited company registration process. |
| Independent Directors | There is no requirement to have Independent directors for a private limited company. | For a public limited company, independent directors must be recruited by the Board. |
| Members or Shareholders | Three Members are required for a private limited company | A minimum of seven members is required public limited company registration |
| Share Capital | There is no minimum share capital requirement for a private limited company. | Previously there was a requirement for the company to have minimum share capital. However, this requirement has been removed. |
| IPO | A private company cannot go for an initial public offering. | A public company can go for an initial public offering. However, compliances have to be met in accordance with the requirements of the SEBI and listing regulations. |
| Foreign Direct Investment | Foreign Direct Investment is allowed for a private limited company | This facility is also permitted for a public limited company. However, there are specific requirements which have to be adhered for securing foreign direct investment. |
From the above differentiation, it is clear that both private limited company and public limited companies have their benefits and disadvantages. Hence, depending on the requirement of the entrepreneur establishing such forms of business entities should be analysed in depth.
