Overview of Public Limited Company (PLC)
Public limited companies have all the rights enjoyed by an entity that is a corporation with limited liability and is an ideal option for medium and small-sized enterprises that want to get equity capital from the general public.
Similar to other companies as well, like other companies, a Public Limited Company is also registered according to the regulations and rules in the Companies Act, 2013. Public Companies enjoy the advantage of having limited liability for their members.
It also has the option of selling its shares to raise the capital of the business. It is incorporated with a minimum of directors, and it has stricter rules and regulations in comparison to a Private Ltd.
In this article, we will be going to discuss more briefly about Public Limited Companies and their various characteristics. So, without any further ado, let’s begin with it.
What is a Public Limited Company (PLC)?
A Public Limited Company (PLC) is a type of business entity that is legally permitted to offer its shares for sale to the general public. In a PLC, ownership is divided among shareholders, who purchase shares of the company’s stock through public offerings on stock exchanges or through other means of public trading platforms. PLCs are commonly larger and more established companies, often with significant capital requirements and a desire to expand operations or raise funds from the public.
However, a PLCs stock or firm share is introduced to the general public & could be bought or acknowledged by any person, either personally during the cycle of the IPO or through trading in the stock market. PLC is even recognized as a publicly held firm.
How does a Public Limited Company Work?
Public limited companies (PLCs) business are very normally utilized in India, United Kingdoms & in an amount of Commonwealth countries. Eventually, this label is utilized with indifference to the Inc. or Ltd. These are such labels that are being utilized in the US & different parts of countries.
In the countries quoted above, the PLC label is necessary & it is utilized to notify investors or any person who aspires to buy and sell with such a firm that the company is publicly available & most few the time it’s very huge.
However, PLC in India can either be registered or unregistered on the share market. It’s completely onto them, whether they want to be registered on not.
Besides their listing decision on the stock market, they are ordered to showcase their financial year reports & illustrate their economic condition to enrich investors’ & stakeholders’ beliefs & even to gain public trust.
The lifespan of a shareholder in a publicly-held company doesn’t impact how long it will continue to be a firm. These businesses can be used to raise capital but also have increased regulation.
Characteristics of a Public Limited Company (PLC)
Separate legal entity
A Public Company is a lawful business entity that has a separate identity from its members/shareholders.
Easy Transferability
A shareholder of a public limited company can easily transfer its shares to the board of the shareholders/directors is limited to the extent of the shares owned by them. In the event of any losses or debts, the shareholders are not personally liable.
Paid-up Capital
For a public company to begin its operations, the minimum paid up capital required is Rs 5,00,000. This is the amendment to the Companies Act 2013.
Name
The word “LTD”, which will be added to the end of any public company’s name, will be included in the name.
Directors
The minimum number of Board Of Directors is 3, maximum of 12. They are elected by shareholders at the Annual General Meeting.
Only the Director ID Number (DIN), issued by the Ministry of Corporate Affairs, must they possess.
Prospectus
A prospectus can be issued to invite the public to subscribe to its shares by registering a public limited company.
A prospectus is a statement that contains detailed information about the company as well as the number of shares requested by the company for an IPO or subsequent listing.
Borrowing capacity
Public companies have the advantage of being able to borrow money from many sources. Public companies can issue debts (secured and unsecured) to raise money. It can also issue preference or equity shares to the public. The company can receive financial aid and loans from banks and other financial institutions.
Number of members
There must be 7 members in a Public company, there is no upper or lower limit to this number.
Voluntary Association
It’s easy to purchase shares in a public company, and it’s just as easy to leave the public company.
Minimum Subscription
The minimum amount that must be received for subscriptions of shares is 90 percent of shares in the public company. The company cannot continue to operate if they are unable to pay the 90 percent amount.
Minimum subscribers
The 7 members of the Public company are the subscribers of the Memorandum of Association of Public Company.
Certificate of Commencement
This is a vital document that must be obtained by the public company before starting a business. The Certificate Of Incorporation is the last document needed for a private company.
For public companies, both the Certificate of Incorporation and Certificate of Commencement is required.
Memorandum of Association
The MOA, which is an important document for the formation of a public company, is essential. After completing the Articles of Association, a private company can begin its business. For a public company, the Memorandum must be submitted to MCA along with the company’s registration.
Section 2(56), Companies Act 2013, defines Memorandum. It outlines the main goals of the company, that is, the main business the company will be involved in.
Private Limited Company vs Public Limited Company
| Aspect | Private Limited Company | Public Limited Company |
|---|---|---|
| Ownership Structure | Typically owned and controlled by a small group of shareholders, often including founders, family members, or private investors. | Owned by shareholders, with shares traded publicly on stock exchanges. Ownership can be widely distributed among the public. |
| Number of Shareholders | Limited to a maximum of 50 shareholders. | Can have an unlimited number of shareholders. |
| Minimum Capital Requirement | Typically, no minimum capital requirement. | Often required to have a minimum amount of authorized capital as per regulatory requirements. |
| Disclosure Requirements | Less stringent disclosure requirements. Financial information is not usually made public. | Subject to more extensive disclosure requirements, including regular financial reporting and disclosures to shareholders and regulatory authorities. |
| Transferability of Shares | Shares cannot be freely traded or transferred without the consent of other shareholders or as per the company’s articles of association. | Shares are freely transferable, allowing investors to buy and sell them on stock exchanges. |
| Legal Formalities | May have fewer legal formalities in terms of incorporation and governance. | Requires compliance with stricter legal formalities, including regulatory filings, annual general meetings, and adherence to corporate governance standards. |
| Access to Capital | Limited access to capital compared to public companies. May rely on personal funds, loans, or private investments for capital. | Greater access to capital through public offerings of shares, allowing for larger fundraising activities from the public markets. |
| Confidentiality | Offers greater confidentiality as financial information is not publicly disclosed. | Subject to less confidentiality as financial information must be disclosed to regulatory authorities and shareholders. |
| Exit Strategy | Limited exit options for shareholders, typically involving selling shares to other existing shareholders or the company itself. | Offers liquidity to shareholders through the ability to sell shares on public stock exchanges. |
Is Limited Company a Public or Private?
Public limited companies are open to the public. This means anyone can purchase shares in them. Private limited companies (Ltd), however, are not traded or registered on the share market.
Many public limited companies were founded as private limited businesses, which then became public after they grew. To be eligible for publication, a public limited company must have a share capital of at least Rs. 5,00,000.
Most companies will need to achieve this threshold by completing a period of business growth. To go public, the company will need 75% shareholder votes.
Advantages of Public Limited Company
- Share sales can be used to raise capital for the company.
- This capital can be used to fund expansion or new opportunities
- You can also use capital to pay off your debt
- Increased brand awareness through publicity
- The stock market listing can improve a company’s prestige and reputation
- Public records may make it easier for you to find business partners
- A brand’s transparency can help customers perceive it better
Disadvantages of Public Limited Company
- A PLC requires two directors, while an Ltd needs only one.
- Public companies have a shorter deadline for tax payments to respective authorities of the country.
- A company secretary for a PLC must have a high level of qualifications, unlike the company secretaries of Ltd.
- Anybody can become a shareholder, and this can cause a company’s vision to be diluted.
- More power is distributed to the less vulnerable shareholders, the more vulnerable they are.
- Public limited companies must hold an annual general assembly
How to Invest in Public Limited Company?
These are the steps to invest in the public limited company are mentioned below:
Research: Before investing in any PLC, it’s crucial to conduct thorough research. This includes studying the company’s financial reports, understanding its business model, evaluating its industry position, and assessing its future prospects. Utilize financial news websites, annual reports, and analyst recommendations to gather information.
Understand the Market: Gain a comprehensive understanding of the stock market and how it operates. Learn about different types of investments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Determine your investment goals, risk tolerance, and time horizon.
Selecting a PLC: Once you’ve conducted thorough research, carefully select the PLC you want to invest in. Consider factors such as the company’s management team, competitive advantage, growth potential, and dividend history (if applicable). Look for companies with strong fundamentals and a track record of consistent performance.
Open a Brokerage Account: To buy and sell shares of a PLC, you’ll need to open a brokerage account. Choose a reputable brokerage firm that offers competitive commissions, a user-friendly trading platform, and access to research tools and educational resources.
Place an Order: Once your brokerage account is set up, you can place an order to buy shares of the PLC. Decide whether you want to buy the shares at the current market price (market order) or specify a certain price at which you’re willing to buy (limit order).
Monitor Your Investment: After purchasing shares of the PLC, monitor your investment regularly. Keep track of the company’s performance, industry trends, and any news or events that may impact its stock price. Consider setting up alerts or notifications to stay informed.
Diversify Your Portfolio: Avoid putting all your investment capital into a single PLC. Diversify your portfolio across different companies, industries, and asset classes to reduce risk. This can help mitigate losses if one investment underperforms.
Long-Term Perspective: Investing in PLCs should typically be done with a long-term perspective. Avoid making impulsive decisions based on short-term market fluctuations. Instead, focus on the company’s fundamentals and its ability to generate sustainable growth over time.
Conclusion
A public company is an attractive option for businesses with large amounts of capital to invest. They are good for entrepreneurs who intend to run large-scale activities. An investor in a public limited company is not individually liable for any losses or debts of the firm that exceed their investment. Entrepreneurs in a PLC can increase the capital of the company by inviting the public to subscribe to shares. The capital is invested in a variety of securities, which helps to reduce overall risk. It eventually gives the company growth opportunities.
Our professionals at OnDemand International have an in-depth understanding of Public Limited Companies and are available to assist you at every stage.
FAQ’s
Limited liability companies have distinct legal existence, limited liabilities, flexible taxation, and straightforward operations.
Increasing shareholder value by making as much money as possible has traditionally been the core objective of practically every publicly traded corporation.
It gives creditability to the company in the sights of financial organizations, distributors, and likely customers.
Yes, a sole proprietorship can be modified into PLC after ensuing the companies act, 2013 protocols.
Yes, any outside residents or an NRI can be a director or stakeholders of a PLC.
- A public limited corporation is one whose shares are sold openly and is registered on a reputable share market. Private limited corporations are neither registered on a share market nor traded openly.
- Contrary to private limited corporations, which must consist of not less than two members, public limited businesses must consist of not less than seven members.
- A private limited corporation must have at least one lakh in paid-up capital, while a public limited firm must have five lakhs.
