Advantages and Disadvantages of Public Limited Company

Know The Advantages and Disadvantages of Public Limited Company

Online Legal India LogoBy Online Legal India Published On 19 Sep 2022 Updated On 06 Jan 2023 Category Public Limited Company

Do you have the urge to start a business but are unsure about the best business plan to use? Beginning business owners frequently struggle to choose the best structure for their enterprise. The decision between a Private Limited Company and a Public Limited Company is the main source of uncertainty. The fact that both Company forms support limited liability adds to the ambiguity. Do you remain concerned? The advantages and disadvantages of forming a public limited company will be highlighted in this article. As a result, it will help you in making the finest choice for your venture's requirements.

What is a Public Limited Company?

The business entity that either offers its shares to the public or trades its securities on the stock market is known as a public limited company, or PLC. PLC raises a sizable sum of money through a public offering of shares. A Public Limited Company is very common in India due to its simplicity in incorporation. It is possible to establish a Public Limited Company with a minimum of 3 Directors, 7 Shareholders, and a Registered Office. A public limited company's core characteristics, which precisely describe its nature, include the following:

  • Limited Liability: According to the PLC suffix, shareholders are only legally obligated to pay back loans up to the minimum value of their shares in the event that the company has losses.
  • Least value of Paid-Up Capital: According to the changes implemented, Public Limited Companies must have a minimum Paid-Up Capital of INR 5 Lakh or a higher amount.
  • The number of members: A Public Limited Company must have a minimum of seven members to be registered, however under the 2013 Companies Act, there is no maximum number of members.
  • Perpetual succession: Legally speaking, a Public Limited Company is a distinct entity. It suggests that a PLC will continue to exist notwithstanding the demise, insaneness, insolvency, or bankruptcy of any of its members.
  • Name of the Company: Every Public Limited Company must end their names with "Ltd."
     

These characteristics not only convey information about the nature of PLCs but also alert individuals to the benefits and drawbacks of public limited company registration.

Requirements for Public Limited Company Registration
 

Following are some requirements for registering a public limited company under the Companies Act of 2013:

  • Before creating a public limited company in India, make sure you have a minimum paid-up capital of INR 5 lakh.
  • One of the two Directors of the proposed PLC must be an Indian citizen in order for the PLC to proceed.
  • The shareholders of a proposed public limited company must total seven people. The maximum number of shareholders is unlimited under the Companies Act of 2013[1], however, the maximum number of directors is 15.
  • The applicant must make sure the name of his prospective PLC is distinctive and does not sound like any other public limited companies already in existence. As a result, it is recommended to check the MCA portal for name availability.

Procedure for Public Limited Company Registration in India:
 

The following steps are necessary for registering a public limited company:

Obtain DSC and DIN: On the MCA website's official page, complete the Company Incorporation Form. Consequently, obtain a DSC (Digital Signature Certificate) for DIN applications.

Approval of Company’s Name: Apply the e-Form RUN right now to see if the name is available for your Public Limited Company. A candidate may submit two names in preference order together with the required INR 1000 in fees.

File the Incorporation Form: Once the name has been approved, the PLC incorporation application in Form SPICE 32 should be sent. Attach all required documentation to your application, including your ID, your PAN card, the address of the planned office, your articles of association, your memorandum of association, etc.

PAN, TAN and Bank Account Application: Apply for PAN, TAN, and bank account opening after receiving your CIN (Certificate of Incorporation) to carry out everyday operations.
 

Advantages (PROs) and Disadvantages (Cons) of Public Limited Company Registration:
 

The following are some benefits of public limited company registration:

Steady Business Growth: With access to sufficient finance, Private Limited Companies can quickly expand their businesses and adopt tech-driven practices.

Raise Capital through Issue of Shares: Running a business would inevitably result in a lack of funds, but unlike a private limited company, a public limited company has the opportunity to raise capital through the public issuance of Shares.

Funds are easily Transferable: A PLC's shares are easily transferrable. A Public Limited Company's stock is listed on the stock exchange, which attracts more potential shareholders.

Reduction in Personal Liabilities: If there are any legal conflicts, the impact of the consequences on an individual's shoulders will be lessened the more people a brand is linked with. You can become less liable with a private limited company than you would if you run a sole trader business. However, because there is still a tiny number of owners in this arrangement, these businesses offer less/ minimasl protection than a public brand when it comes to problems like debts, consumer privacy issues, copyright infringement, etc. PLCs also make it simple to transfer shares and other assets, which makes leaving the company simpler than it would be with private limited companies.

Corporation Links and Alternate Growth Avenues: Investors in your shares want your business to prosper so they may increase their profits. As a result, your company may establish connections with business owners, other sorts of companies, and seasoned industry specialists that would not have been possible in the past. These connections may present new prospects for growth and profit maximisation. Of course, everything is up for speculation and depends on who purchases stocks, but there is potential. For instance, if a marketing company invested in your brand, you might find that it might promote growth through special offers, advice, and trade, or at the very least present new business networking prospects.

Access to additional Funding: Banks and other financial institutions typically offer Public Limited Companies credit or loans at competitive interest rates. Additionally, PLC has the power to negotiate the terms and conditions for loan repayment.

Disadvantages of Public Limited Company Registration

 

Higher Paid-Up Capital: In comparison to a Private Limited Company, the cost of forming a Public Limited Company is significantly higher (INR 5 Lakh) (INR 1 Lakh).

Increased Legal Implications: As was briefly mentioned before, firms that wish to operate in the public sphere must establish stricter legal procedures in order to protect shareholders from potential PLC law-based repercussions and to give transparency to shareholders. This entails an emphasis on observing numerous laws and greater administrative responsibilities. It is a time and resource drain above all else.

Potential for Loss of Control: Shares ultimately determine who owns a corporation. PLC shares have voting rights, so if you sell off more than 50% of your firm, shareholders may be able to take control and even kick you out of the company. This is particularly risky when there are two directors with opposing ideologies and significant share volumes since, with enough support, one of them may depose the other. This is a crucial point to take into account when weighing the benefits and drawbacks of public limited companies.

Different Directions for the Business: This has been listed as a plus, but it can also be a drawback. Directors in an LTD are completely in charge of the company's course and how they envision its future. You must take into account the wishes and rights of your shareholders if you run a public limited company; otherwise, you risk backlash and a drop in share value. This implies that you may be subject to their demands, which could force a change in course or a preference for immediate profit over long-term advantages.

More Stringent Regulations: A PLC must abide by a number of statutory rules. These laws have been established to protect the shareholders' interests in the company.

Transparent Dealing is Required: Public limited companies are expected to publish all relevant information regarding their business operations and potential growth because they sell their shares to the general public. PLC has no privacy and cannot keep anything a secret; even their account information is public knowledge.

Stock Market Vulnerability: Private limited companies' worth is closely correlated with their internal resources, investments, and business. A public limited business, on the other hand, does not fit this description. Success is dictated by stock value. We've all heard stories of businesses failing as a result of external problems like poor PR, which caused their share values to plunge. In some circumstances, this can raise the vulnerability of a company. There is no doubt that PLCs are more susceptible to influence on value than LTDs, which is detrimental to the stability of a public firm.

Conclusion

Public Limited Company Registration has advantages and disadvantages, just like any other business. Public Limited Company is totally the best option for you if you wish to manage a firm with ample cash and unrestricted responsibility.

 


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