Company Registration

Public Limited Company

Public Limited Company

What is public limited company?

A public company, also known as a public limited company (PLC) in some regions, is a type of business entity whose ownership is divided into shares of stock that are available for purchase by the general public and are typically traded on a stock exchange. Public Limited companies are subject to regulatory requirements, including financial disclosure and reporting, and they offer shares to raise capital from a wide range of investors. Shareholders of public limited companies have limited liability, and the company’s financial information is made publicly available.

Features of a public limited company

Public limited company have various features like share ownership, listing on stock exchanges, and many more. They are explained below:

1. Share Ownership

A public limited company ownership structure is characterized by the division of ownership into shares of stock. These shares are available for purchase by the general public, institutional investors, and other entities. Shareholders in a public limited company hold a fractional ownership interest in the company, and the extent of their ownership is determined by the number of shares they hold. This share-based ownership model allows for the widespread distribution of ownership, with numerous shareholders having a stake in the company’s performance and success.

2. Listing on Stock Exchanges

Public limited companies seek to increase the accessibility of their shares by listing them on recognized stock exchanges. Listing on stock exchanges, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE), facilitates the public trading of the company shares. This process provides shareholders with a platform to buy and sell shares in the open market, enhancing liquidity. The ability to trade shares freely on these exchanges is a fundamental feature of public limited companies, enabling investors to convert their investments into cash quickly and efficiently.

3. Limited Liability

One of the advantages of being a shareholder in a public limited company is the concept of limited liability. Shareholders enjoy protection for their personal assets, as their financial liability is generally confined to the amount they have invested in the company shares. In the event of the public company facing financial difficulties or obligations, shareholder’s personal assets are shielded from potential claims and losses. This limited liability feature is a fundamental aspect of public limited companies and encourages investors to participate in the financial markets with confidence.

4. Access to Capital Markets

One of the best advantages of being a public limited company is the access to capital markets. By issuing additional shares to the public, these companies can raise capital to fuel various aspects of their business. This capital can be utilized for purposes such as expansion, research and development, debt repayment, or strategic acquisitions. Access to capital markets allows public limited companies to tap into a broad pool of investors, making it easier for them to secure substantial funds for their growth and operational needs, providing a competitive edge in the business world.

5. Corporate Governance

Public limited companies typically maintain Strong corporate governance structures. These structures include boards of directors responsible for overseeing the company management and decision-making processes. The board of directors represents the interests of shareholders and ensures that the public company operates in a manner that maximizes shareholder value. Corporate governance practices aim to ensure transparency, ethical conduct, and accountability. They provide a framework for setting company policies, defining executive compensation, and making strategic decisions. A well-structured corporate governance system is essential for instilling investor confidence, fostering long-term success, and upholding ethical business practices.

6. Corporate Structure

Public limited companies often feature complex corporate structures. They may issue multiple classes of shares, each with distinct rights and privileges, allowing for flexibility in ownership and control. These public companies frequently have a diverse shareholder base that can include individuals, institutional investors, and employees. This diversity in ownership can provide unique challenges and opportunities, requiring effective management and communication. Public limited companies aim to maximize shareholder value through efficient corporate structures that align with the public company objectives. Their structure can adapt and evolve over time to meet changing business needs and market dynamics while maintaining a focus on creating value for their shareholders.

Type of public limited company

A public limited company can be broadly categorized into two main parts based on the status of its shares in relation to the stock exchange. The first part encompasses those public companies that have taken the step to list their shares on a recognized stock exchange, making them available for trading by the general public and institutional investors. These publicly traded companies adhere to stringent regulatory and disclosure requirements to provide transparency to their shareholders and the wider market.

On the other hand, the second part comprises public companies that have not chosen to list their shares on a stock exchange. These companies remain privately held, and their shares are not available for trading on the open market. They may still have a significant number of shareholders and operate as public companies in many respects, but do not have the same level of liquidity and regulatory obligations as their publicly traded counterparts. Each part represents a distinct approach to corporate ownership and financial market participation within the realm of public companies.

Advantages of public limited company

Public limited company advantages are access to capital, liquidity for shareholders, and many more. They are explained below:

1. Access to Capital

Public companies have a distinct advantage in accessing capital. By issuing shares to the public, they can secure substantial funds for growth, investments, and financial requirements. This broader access to capital markets makes it easier to raise substantial amounts compared to private limited companies. The ability to attract a wide range of investors provides a competitive edge in financing expansion and pursuing strategic opportunities.

2. Liquidity for Shareholders

Publicly traded shares offer shareholders liquidity, enabling them to buy and sell their investments easily on stock exchanges. This liquidity creates flexibility, allowing investors to convert their holdings into cash as needed. Unlike private limited company shareholders, who may face restrictions on selling their shares, public limited company shareholders can readily trade their holdings in the open market, providing an exit strategy and access to cash.

3. Enhanced Visibility and Credibility

The status of being a publicly traded company often enhances visibility and credibility. Public limited company attract the attention of analysts, institutional investors, and potential business partners, leading to a broader array of growth opportunities. The increased exposure and recognition in the investment community can contribute to the company’s growth and solidify its reputation in the business world.

4. Stock-Based Incentives  

Public limited companies can leverage stock options and grants as incentives for employees. This aligns employee’s interests with those of shareholders, motivating them to contribute to the company’s long-term success. Stock-based incentives can help attract and retain top talent, as employees become direct stakeholders in the company’s performance and benefit from stock price appreciation, fostering a culture of dedication and commitment.

5. Valuation Benchmark

Public limited company enjoy the advantage of a publicly traded stock price, which serves as a clear valuation benchmark. This established market value assists in attracting investment and determining the company’s worth. Potential investors can make informed decisions based on the company’s stock price, providing a transparent valuation that helps the company communicate its value to the market. This clarity in valuation supports growth, strategic decisions, and capital-raising efforts.

Disadvantages of public limited company

Disadvantages of public limited company are regulatory burden, pressure for results, and many more. They are explained below:

1. Regulatory Burden

   Public limited companies face a significant regulatory burden. They must adhere to complex and strict regulatory requirements, including extensive financial reporting, disclosure, and transparency standards. Compliance with these regulations can be time-consuming, costly, and demanding, diverting resources and attention from core business activities.

2. Pressure for Results

   Public limited company often experience pressure to deliver strong quarterly results to satisfy shareholders and financial markets. This priority on short-term performance can hinder the pursuit of long-term strategic objectives, as management may prioritize immediate financial goals over sustainable growth and innovation.

3. Risk

Public limited company are exposed to the risk of hostile takeovers, where external entities or investors acquire a significant stake in the company without board approval. This vulnerability can lead to changes in leadership or strategy that may not align with the company’s long-term vision, affecting corporate stability and direction.

4. Shareholder Activism

 Public limited company are liable to shareholder activism, where influential shareholders push for changes in the company’s operations, governance, or strategy. While shareholder activism can be beneficial in some cases, it can also disrupt business operations and divert management’s attention from executing the company’s strategic vision.

5. Market Volatility

 The shares of public limited company are subject to market volatility, which can result in significant price fluctuations. This volatility can impact the company’s market capitalization, investor confidence, and the overall value of shareholders’ investments. Sudden stock price swings can be challenging to manage and may affect the company’s ability to attract and retain investors.

Basic need for public limited company

When establishing a public limited company, the process is governed by specific rules and regulations under the Company Act. To successfully register a public limited company, the following key considerations should be taken into account:

Shareholders and Directors: A minimum of seven shareholders and three directors are required to initiate the formation of a public limited company.

Authorized Share Capital: The company must have a minimum authorized share capital of Rs. 1 lakh as per the 1956 Company Act, but as per the current Company Act 2013, the requirement of authorized capital is nil.

Digital Signature Certificate (DSC): At least one of the directors must possess a Digital Signature Certificate (DSC). Additionally, self-attested copies of identity and address proof should be submitted.

Director Identification Number (DIN): Directors of the proposed company must obtain a Director Identification Number (DIN).

Company Name: The chosen name for the company must comply with the provisions outlined in the Company Act and Rules.

Documentation: Essential documents, including the Memorandum of Association (MOA), Articles of Association (AOA), and a duly filled Form DIR – 12, must be prepared and submitted.

Registration Fees: The prescribed registration fees must be paid to the Registrar of Companies (ROC) to complete the registration process.

When to choose public limited company

Before registration of public limited company you must have knowledge of this 5 important points. They are as given below:

1. Access to Capital

Many businesses require substantial capital for growth, expansion, acquisitions, or debt reduction. Going public offers access to a diverse pool of investors and provides a more effective means of raising funds. Public limited company can secure significant capital through the sale of shares on stock exchanges, enabling them to pursue ambitious strategic objectives.

2. Growth Opportunities

Public limited company benefit from heightened visibility and credibility, which attracts larger investments and opens up numerous growth opportunities. Enhanced market recognition and access to a broader investor base facilitate expansion, innovation, and market share growth, making it a compelling choice for businesses with aggressive growth ambitions.

3. Ownership Transition

Business owners and founder often consider going public as part of an exit or succession plan. This transition allows them to sell their shares to the public, monetizing their ownership stakes and providing an exit strategy while ensuring the business continues to operate.

4. Liquidity for Existing Shareholders

Existing shareholders, including founders and early investors, may wish to have the option of selling their shares on the open market, providing liquidity for their investments. Going public offers an avenue for shareholders to monetize their holdings, offering flexibility and financial freedom.

5. Acquisition Currency

Public limited company use their publicly traded shares as a currency for mergers and acquisitions. This eases the process of engaging in strategic partnerships and expanding business operations through acquisitions. Publicly traded stock serves as a valuable currency for negotiations and allows companies to access a wider range of potential targets for growth and diversification.

Important Documents for Private Limited Company

Various documents required for private limited company. They are given below:

1. Proof of Identity: All shareholders and directors must provide proof of their identity.

2. Proof of Address: Directors and shareholders need to furnish proof of their residential addresses.

3. PAN Number: PAN numbers are required for all directors and shareholders.

4. Utility Bill: A utility bill for the proposed office, which is the intended registered office of the company, should be provided.

5. NOC from Landlord: A No Objection Certificate from the landlord of the office premises is essential.

6. Director Identification Number (DIN): Each director must possess a Director Identification Number (DIN).

7. Digital Signature Certificate (DSC): Directors are required to have a Digital Signature Certificate (DSC).

8. Memorandum of Association (MOA): The Memorandum of Association needs to be prepared and submitted.

9. Articles of Association (AOA): The Articles of Association must also be prepared and submitted.

Steps required to registered public limited company

Following are the steps taken for registered a public limited company. They are given below:

Step 1: Obtain a Digital Signature Certificate (DSC)

  • A Digital Signature Certificate DSC is essential for filing online registration forms on the MCA portal.
  • All proposed directors and memorandum/articles of association subscribers must possess a DSC.

Step 2: Obtain Director Identification Number (DIN)

  • A Director Identification Number (DIN) is a unique identification number for directors.
  • Individuals intending to become company directors must obtain a DIN.
  • DIN, along with the director’s name and address proof, must be included in the company registration form.

Step 3: Register on the MCA Portal

  • Complete the SPICe+ form and submit it on the MCA portal to initiate the company registration process.
  • The company director needs to register on the MCA portal to access the necessary services.
  • This registration allows for the submission of e-forms and access to public documents.

Step 4: Certificate of Incorporation

  • The Registrar of Companies (ROC) reviews the registration application along with the provided documents.
  • After successful verification, the ROC issues the Certificate of Incorporation for the Public Limited Company.
  • Subsequently, the company should apply for the ‘Certificate of Business Commencement.

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Private Limited company

Private Limited company

What is a private company?

A private company, often called a private limited company, is owned by a small group or entities. Unlike public companies, it doesn’t sell shares to the public or trade on stock exchanges. This select ownership offers more control and privacy in decision-making and financial matters, making it an appealing option for those prioritizing stability and confidentiality in their business operations.

Characteristics of a company

The following is the objective of a private limited company(characteristics of a company). They are explained below:

1. Company Name

Private limited companies commonly use the term “Private Limited” or the abbreviation “Pvt. Ltd.” as part of their company name. This designation indicates the company’s legal structure and limited liability status. Including “Private Limited” or “Pvt. Ltd.” in the company name is a requirement in many jurisdictions to signify that the company is privately held and its ownership is limited to a select group of shareholders. 

2. Limited Liability

The advantage of a private limited company lies in its limited liability feature, which safeguards the personal assets of its shareholders (owners) from the company’s debts and obligations. Under this structure, the private company is considered a distinct legal entity in the eyes of the law. As a result, the shareholders’ liability is restricted solely to the extent of their investment in the company or any guarantees they may have provided during its incorporation process. This means that the shareholders are not personally responsible for the company’s debts beyond their initial contributions or guarantees. This concept of limited liability encourages investment and entrepreneurial endeavours while protecting the individual shareholders’ wealth.

3. Number of Shareholders

Private Limited companies have a smaller number of shareholders compared to public companies. As per company Law, the minimum number of shareholders required to form a private company is two(2), and the maximum can be limited to a few hundred.

4. Transferability of Shares

In a private limited company, shares can’t be sold to outsiders without approval. Shareholders require consent from fellow shareholders to sell or transfer their shares, ensuring a controlled and close-knit ownership structure.

5. Financial Disclosure

Private limited companies are not mandatory to disclose their financial information, such as annual reports and financial statements, as public limited companies do. The financial information remains confidential among the shareholders and regulatory authorities. 

6. The company is an artificial person

A private limited company, as a legal entity, not a person. People manage it, but it can do things like making deals, owning things, and being involved in legal cases, just like a person.

7. Perpetual Succession

Perpetual succession is a concept that allows a private limited company to continue existing even if its founders, shareholders, or members change or pass away. Easily, it means that the company can go on forever, regardless of who the owners or current members. 

8. Separate property

“Separate property” refers to the distinct legal separation between a private limited company and its owners (shareholders). It means that the private limited company’s assets, liabilities, and legal obligations are separate and distinct from those of its owners.

Type of Private Company

Following are the types of private limited company. They are as explained below

1. Company limited by share

 A company limited by shares is a private company with shareholders whose liability is restricted to the unpaid value of their claims. It operates by dividing its capital into shares, which represent ownership stakes. Shareholders are shielded from personal liability beyond their share contribution.

2. Limited by Guarantee Company

A company limited by guarantee is a special type of private limited company in which “shareholders or owners” provide a certain amount as a guarantee. It helps to protect the members from large debts. It’s commonly used by charities, clubs, and other non-profit groups because it gives them legal protection and allows them to do good things for their communities without worrying too much about financial risks.

3. Unlimited company

An unlimited company is a business structure where the liability of its members extends beyond their investment. If the company faces debts or financial issues, the members can be held personally responsible for all obligations, even beyond the value of their shares. This form of company is less common and carries higher financial risk for its members compared to limited liability companies.

Benefits of a private limited company

Advantages of a private limited company like limited liability, separate legal entity and many more. They are explained below:

1. Limited Liability

The advantage of a private limited company lies in its limited liability feature, which safeguards the personal assets of its shareholders (owners) from the company’s debts and obligations. Under this structure, the private company is considered a distinct legal entity in the eyes of the law. As a result, the shareholders’ liability is restricted solely to the extent of their investment in the company or any guarantees they may have provided during its incorporation process. This means that the shareholders are not personally responsible for the company’s debts beyond their initial contributions or guarantees. This concept of limited liability encourages investment and entrepreneurial endeavours while protecting the individual shareholders’ wealth.

2. Separate legal entity

The best thing about a private limited company is that it’s like its own person. It’s separate from its owners, which means it has its own rights and responsibilities. Even if the people running the company change, it goes on forever. This gives the business stability and lets it operate for a long time. So, when you set up a private limited company, you create a strong and independent entity whose go forever either member may come and go private limited company goes forever. 

3. Ownership

The best advantage of a private limited company is private ownership. Since its shares are not publicly traded, the company enjoys greater privacy and control over who owns it. This means the owners can make decisions without interference from public shareholders, giving them more flexibility to run the business.

4. Tax Benefits

Private limited companies enjoy some great perks when it comes to taxes. These benefits can lead to lower tax payments, which means more money stays in the company’s pocket. It helps boost profits and provides extra funds for the company to use. The government offers these tax advantages to encourage business growth and investments. So, if a private company makes good use of these tax benefits, it can make a big difference in its financial success.

5. Transfer of shares

In a private limited company, sharing ownership with others is a little different than in big public companies. It’s more like a family, where you can choose who joins the family as a shareholder. This gives the company more stability and control, as everyone shares the same vision.

Disadvantages of a private limited company

There are various disadvantages of private limited company like Restrictions on share transfers, Limited resources and many more. They are explained below:

1. Restrictions on share transfers

In private limited companies, transferring shares is difficult, but it is treated as welcoming new members into the company ownership. Unlike big public companies, we have more control over who becomes a shareholder. When someone wants to join a private company, existing shareholders take some time to ensure they’ll be fit as shareholders of our private limited company. Our company’s rules might require approval from existing shareholders or the board before the transfer. 

2. Limited resources

One of the challenging things about private limited companies is that they often need more resources to work with. Private companies have fewer options than big public companies that can easily raise money from the stock market. It can be challenging to get enough funds for big expansions or exciting new projects.

3. Shareholder disputes

Shareholder disputes can sometimes arise in private limited companies. Since there are fewer shareholders, disagreements on company matters like decision-making, profits, or future directions can happen. 

Distinguished between private company and public company

Objective Private company Public Company
Ownership Owned by private individuals Owned by public
Abbreviation End with the word PVT. LTD End by the phrase LTD
Number of Shareholders The minimum number of shareholders is 2The maximum number of shareholders is 100 Minimum number of shareholders 7The maximum number of shareholders is unlimited
Share Transfer Restrictions Share transfers may need approval Shares can be freely bought and sold
Disclosure Requirements Less strict rules for sharing information More requirements to disclose financial information
Access to Public Capital Limited access to public stock markets Can raise funds from the public through stock sales
Legal Compliance Less compliance More compliance
Shareholder Privacy Shareholders have more privacy Shareholder details are general information
Company Size Generally, small and medium company size Mostly large company
Employee Incentives Fewer options for employee share ownership More employee stock options and incentives

When to choose a private limited company?

Before choosing a private company, you have to go through the given factors and then decide. The following are the factor that governs the decision for a private company:

1. Nature of business

The nature of business is an important factor that directly impacts the type of business you choose to serve, like trading businesses, hotels, restaurants, etc.

2. scale of operations

The second important factor of a private limited company is to operate at either small, medium, or large. It all depends on whether you have available resources.

3. Levels of control in management

A private limited company is not a suitable option for a person who desires to control the whole business by himself. They can go for a private limited company if they can share an equal say in decision-making.

4. Degree of risk & liability

The level of risk and liability directly depends on the scale of operations. A private limited company operates at a small level and has less chance and harm than medium and large private limited companies.

5. Distribution of profit

If a person wants to receive all the profits of his business and bear all the risk, then sole proprietor is the best option. But, if you can share profit and loss, only go towards a private limited company.

6. Tax implication

Tax implication is very important in selecting a level to operate a private limited company. 

7. Transferability of ownership

If a person wants to keep the ownership private from others, then they should go for proprietorship. But, if you can share a request, go for a private limited company.

8. Independence

The private limited company is subject to government regulations. So if the entrepreneur wants freedom in business with little government interference, Then they must go with proprietorship.

Documents needed for incorporation of a private limited company

Their are various documents needed for incorporation of a private limited company. They are explained below:

1. Proof of identification

Following are the documents you can submit any one out of them as proof of identity:

  1. Pan card
  2. Aadhar card
  3. Driving license
  4. Passport 

2. Proof of address

 Following are the documents you can submit any one out of them as proof of address:

  1. Latest telephone bill(not older than 60 days)
  2. Latest electricity bill (not older than 60 days)
  3. Bank account statement having an address 

3. Documents of the private limited Company /Proof of registered office of the company

The documents given below must be submitted as address proof of the company. They are as follows:

  • Tenancy/rental agreement 
  • Letter or NOC from the landlord, as use his/her property as the registered office. 
  • Sale deed of the private limited company office premises in the name of the private limited company
  • The Memorandum of Association (MoA) 
  • The Articles of the Association (AoA) 

Steps to the registration of a private limited company

Their are the steps to registration of a private limited company. They are explained below:

1. Digital Signature Certificate (DSC)

A Digital Signature Certificate (DSC) is an essential document. In private limited company incorporation, DSCs are important for directors’ authentication. This ensures online document filing’s legality and authenticity. 

2. Director Identification Number (DIN)

The Director Identification Number (DIN) is a special ID card for people who want to become directors of private limited companies in India. It’s an important step to starting a new company. The DIN helps to ensure that only suitable and qualified individuals become directors, which is good for transparency and proper management. Once they get their DIN, they can use it to be directors in different companies for a lifetime.

3. Registering on the MCA Portal

 Registering on the MCA Portal is an important step when starting your company in India. It’s like creating an account on a special website that helps you with all the paperwork and steps for setting up your business. Registering on the portal allows you to submit your documents online, keep track of your application’s progress, and easily communicate with the government authorities. It makes the whole process smoother and more convenient, helping you get your private limited company up and running quickly and easily.

4. Certificate of Incorporation (CIN)

The Certificate of Incorporation (CIN) is the “birth certificate” of your newly established private limited company. It is the final and crucial step in starting your business. Your business is ready to take off after completing all requirements and obtaining government approval. This official document validates that your company is now legally registered and recognized. It includes your company’s name, registration number, and incorporation date.

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