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Public Company: A Comprehensive Guide

Public Company in India

Public Company: A Comprehensive Guide

A public company is a legally registered organization that offers ownership shares for sale in the capital markets. While an executive team manages and oversees the day-to-day operations of a public company, it can issue and sell shares of its stock to a wide range of investors through the open market. This means that ownership in the company can be distributed among thousands or even millions of individual investors who purchase these shares. IndiaFilings can assist in registering a public company, ensuring a smooth and legally compliant process.

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What is a Public Company?

A public company, also known as a public limited company, is a type of business organization that allows the general public to own shares of its equity. These shares are typically bought and sold on established stock exchanges, where brokers, traders, and investors can participate. This type of company offers an opportunity for a wide range of individuals to invest in the company and become shareholders.

Public companies are distinct from private companies because they are subject to more extensive regulations and disclosure requirements. While an executive team manages the day-to-day operations of a public limited company, the company’s ownership is distributed among numerous individual investors who purchase shares of the company’s stock. These shareholders often have the right to vote on the election of a board of directors, which, in turn, appoints the executive team responsible for overseeing the company’s business activities.

Law Governing

In India, the law governing public companies is primarily outlined in the Companies Act of 2013, which has replaced the Act of 1956. The Companies Act of 2013 defines the structure, formation, operation, and dissolution of companies in India, including public limited companies.

Key Provisions of the Companies Act 2013  

The Companies Act of 2013, governing public companies in India, imposes key regulations:

  • No Minimum Capital: Public companies have no minimum capital requirement under the Companies Act 2013.
  • Transparent Reporting: Public firms must disclose financial data, including balance sheets, income statements, and cash flow statements, subject to external audit and filed with the Ministry of Corporate Affairs.
  • Directors: Public firms must have a board with a minimum number of directors specified by the law.
  • Prospectus: When public firms offer shares through an IPO, they must publish a detailed prospectus, guiding potential investors.
  • Shareholder Rights: Shareholders have voting rights on key matters protected by the Companies Act and regulators.
  • Regulation: SEBI oversees public firms, ensuring compliance with securities laws protecting investors’ interests.

Types of Public Companies

Public companies can be classified into two types:

  • Listed Company: A company whose shares are listed and traded on the stock exchange
  • Unlisted Company: A company whose shares are not listed on the stock exchange; therefore, these shares cannot be traded there.

Key characteristics of a Public Limited Company

Key characteristics of a Public Limited Enterprise are explained in detail below:

Board of Directors

The Companies Act mandates that a public limited enterprise must have a minimum of three directors, but there is no maximum limit. This board of directors oversees the company’s management and decision-making.

Company Name

All publicly traded companies must legally include “Limited” in their name. This inclusion serves as an identifier to signify that the company is open to the public for investment.

The Company’s Prospectus

Enterprises are obligated to prepare and distribute company prospectuses. . The prospectus provides a comprehensive overview of the company’s operations and financial standing, offering potential investors valuable information.

Paid-Up Capital

The regulations outlined in the Companies Act do not specify a minimum amount of initial share capital required to register a public limited enterprise. This flexibility allows companies to determine their capital structure based on specific needs and goals.

Key Requirements for Establishing a Public Limited Company

To establish a Public Limited Company, you need to meet the following requirements:

  • Minimum Shareholders: You must have at least seven shareholders to register the company.
  • Minimum Directors: The Company should have a minimum of three directors.
  • Digital Signature Certificate: At least one director must possess a Digital Signature Certificate.
  • Director Identification Number (DIN): All directors must obtain a Director Identification Number (DIN).

Advantages of Public Limited Companies

The advantages of registering your enterprises as Public Limited Companies are as follows:

Issuing Shares to the Public

Public companies can raise funds by issuing shares to the public or securing loans with their assets as collateral. Shareholders benefit from liquidity due to the ability to trade shares on the open market, and public scrutiny fosters trust in management.

Increased Finance Opportunities

Public companies have access to diverse financial instruments due to heightened regulatory scrutiny, offering multiple avenues for raising capital. This includes selling shares and securing loans, giving shareholders opportunities to invest.

More Opportunities to Grow and Expand

Going public is a common way for smaller companies to fund expansion, combining public share offerings and debt. Public companies face greater accountability, which can enhance operational efficiency.

Transferability of Shares

Public Limited Companies offer the transferability of shares, enabling shareholders to buy or sell stock without director approval freely. This makes attracting investors easier compared to private companies with share transfer restrictions.

Disadvantages of Public Limited Companies

The disadvantages of Public Limited Companies are explained in detail below:

Increased Regulatory Requirements

Public companies must adhere to more regulations and hold annual general meetings, allowing shareholders to vote on significant matters increasing administrative burden.

Ownership Issues

Unlike private companies with familiar shareholders, public companies have a diverse ownership base, making control and management more challenging. Original owners may lose control and need to manage diverse shareholder expectations.

Vulnerability to Takeovers

Since shareholders collectively own a portion of the company, a majority can influence strategic decisions. This vulnerability means that by acquiring shares progressively, another corporation could take control of the company and make decisions like selling it.

Difference between Public and Private Company

A private company is usually owned by a smaller group of people, like the founders or a few investors, who have more control over its run. Share ownership can be harder to change in private companies, and they can share less information with the public.

On the other hand, a public company allows anyone, including the general public, to buy and sell shares in the company on stock exchanges. This means it has to follow more rules and share more financial information with the public, but the people who own shares don’t usually get to control the company’s daily activities.

For details on the Difference between Public and Private Company, refer to our article.

Documents Required for Public Limited Company Registration

To register a Public Limited Company, you will need the following documents:

  • Proof of identity for shareholders and directors, like Aadhar card, PAN card, or voter ID
  • Proof of address for shareholders and directors
  • PAN card details for all members, directors, and shareholders
  • Address proof for your company’s office or business place, such as recent utility bills (not older than two months)
  • A letter from your office landlord permitting your company to use the premises
  • Digital signature certificates (DSC) for designated directors
  • Copies of your company’s Articles of Association (AOA) and Memorandum of Association (MOA)

Registration Process  

Here’s a step-by-step guide on how to incorporate a Public limited Company:

Step 1: Acquire DSC and DIN

Obtain a director’s Digital Signature Certificate (DSC) from a certifying authority. All proposed directors must also register for a Director Identification Number (DIN) by completing the SPICe form. This simplifies the DIN application process.

Step 2: Check Company Name Availability

Verify if your desired company name is available on the Ministry of Corporate Affairs (MCA) website. Access the MCA portal, select MCA services, and confirm name availability. Ensure the chosen name does not infringe upon existing trademarks or service marks.

Step 3: Submit SPICe+ Form

Apply for a Certificate of Incorporation by submitting the SPICe+ form once your proposed name is approved. Alongside the form, provide all necessary documents, including the Memorandum of Agreement and Articles of Association.

Step 4: Obtain a Certificate of Incorporation

Upon receiving, processing, and approval of the entity’s formation documents by the relevant authorities, Certificates of Incorporation are issued. These certificates include the company’s Corporate Identification Number (CIN) and the incorporation date.

Step 5: Obtain PAN and TAN for the Company

After obtaining the Certificate of Incorporation, members and directors can apply to the Ministry of Corporate Affairs for a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN Registration) issued in the company’s name.

Step 6: Create a New Bank Account

To open a bank account in the company’s name, provide the bank with a PAN card and Certificate of Incorporation details. This allows the company’s members to establish a bank account for business operations. (IndiaFilings can help in opening Business Bank Account.)

How Can IndiaFilings Assist with Public Company Registration?

With a team of experienced professionals well-versed in the legal and regulatory requirements, IndiaFilings simplifies the complex process of registering a Public Limited Company.

From obtaining Digital Signature Certificates (DSC) to filing the necessary forms and documents, we offer comprehensive support to ensure a smooth and hassle-free Public Limited Company registration process.

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