Advantages and Disadvantages of Public Limited Company

If you plan to set up your first company but are still determining which business model to opt for, this article is for you. Most of the time, people must be aware of the different business structures and their pros and cons.

In this article, we have covered the advantages and disadvantages of a Public Limited Company.

What is a Public Limited Company?

Per the 2013 Company Act, a Public Limited Company is a business entity with limited liability and can sell shares to the public. Anyone can buy shares of the Public Limited Company. It can either be through the IPO (Initial Public Offering) or the open stocks available in the stock market.

Features of a Public Limited Company

• Under the Public Limited Company registration, the minimum number of directors is 3, and the number of shareholders is 7.
• As per the Companies Act of 2013, a Public Limited Company has its legal existence.
• The owners and directors have no accountability to the creditors. Therefore, the properties of the directors and owners of Public Limited Company are not at risk.
• Since the company is a legal entity, it can transfer shares, property, etc., in its name. The shareholders and owners of the company cannot claim this property as long as the business is open.
• The Public Limited Company can accept deposits from the public.

Procedure To Register A Public Limited Company

Obtain DIN and DSC

To register a Public Limited Company, you must fill out the Company’s Incorporation form on the MCA website. You will need a Digital Signature Certification for the DIN application.

Apply for the Company Name Availability Through the SPICE+ form or RUN web form

The RUN web form is helpful if you want to reserve your proposed company’s name or change the existing company name. You can reserve the company name even before you obtain a Digital Signature.

The applicant can either use the RUN web form or the SPICE+ form for the business name reservation and the company’s incorporation. Once the process is completed, ROC will issue the incorporation certificate.

PAN, TAN, and Bank Application

After you obtain the Certificate of Incorporation, applying for PAN, TAN, and the bank account on the company name is recommended.

Advantages Of A Public Limited Company

Transparency: A Public Limited Company operates with transparency. The company provides reports and information (that includes financial reports and annual accounting) to the public. So, a Public Limited Company is very transparent in terms of business operations.

Limited Liability of Shareholders: The director’s and shareholder’s liability is limited to the extent of shares they have in the company. In case of losses, the shareholders and directors can avoid putting their personal assets at stake. Hence, their personal assets are secured.

Transferability of Shares: The Public Limited Company shares are purchased and sold openly in the stock exchange market. You can easily transfer these shares between the stock exchange market and the company’s members.

Raise More Funds: As the shares are openly available in the stock market, a Public Limited Company can also raise funds through the public by issuing bonds and debentures.

Better Financial Opportunities: A Public Limited Company has better opportunities to attract more investors. Due to the nature of the business and the transparency, investors are more likely to provide financial support to a Public Limited Company.

Separate Legal Entity: Since the Public Limited Company has an existence of its own, the absence or availability of the shareholder does not impact the business. 

Maintains the Reputation and the Brand Position: The brand position is improved in the case of a Public Limited Company because the shares are listed in the stock market. 

Disadvantages Of A Public Limited Company

No Confidentiality: As the accounts and business are transparent to the public, there is no confidentiality in this kind of business model. The public is involved in the decision-making.

Higher Capital Required: To form a Public Limited Company costs about Rs.5 Lakhs, whereas a Private Limited Company formation costs only Rs.1 Lakh.

Lesser Flexibility: To safeguard the shareholders’ interest, the Public Limited Company has to abide by the rules and regulations. There is less flexibility in this business model.

Conclusion

Every business model comes with its share of pros and cons. On a positive note, the Public Limited Company has a lot of financial opportunities due to its transparency, and at the same time, lack of confidentiality is also its con.