Introduction to Benefits of Public Limited Company Registration
Public Limited Company Registration is administered by the Registrar of Companies (RoC). A public limited company is registered as per the provisions of the Companies Act, 2013. After the public limited company is registered, it can offer its shares to the public either by trading on the stock market or through Initial Public Offerings (IPO).
Summary of Public Limited Company Registration
For an individual who wants to commence a small or medium scale business, public limited company registration is an idyllic option as a public company enjoys all the privileges of a corporate body with limited liability. Just like any other company registration, public limited company registration is also done as per the provisions of the Companies Act, 2013.
Public limited company registration offers benefits like a limited liability to the members of the company, and it can also sell its share to raise the company’s capital for incorporating a public limited company a minimum of three directors and seven members. There is no maximum limit of members in a public company. The rules and regulation of a public company are more stringent as compared to a Private Limited Company.
A public limited company has all the benefits of a Pvt. Ltd. A company along with ease of transferability of shareholding & ownership and has more transparency. Name, formation, shares, management, number of directors and members make a distinction between public limited company and Pvt. Ltd. Company.
Advantages of Public Limited Company Registration
Raising Capital through Public Issue of Shares
The most apparent advantage of being public limited company registration is the capability to raise capital by issuing shares, specifically where the public company is listed on a recognized stock exchange.
Since a public company can sell its shares to the general public and any person can invest their money. The public company can raise capital much larger than a Pvt. Ltd. company.
A public company that is listed on a stock exchange can catch the attention of hedge funds, mutual funds, and other institutional traders for investment in the company.
Widening the Shareholder Base
By offering shares to the general public gives the chance to extend the risk of company ownership among a large number of shareholders. This allows investors to sell some of their shares at a profit and still retaining a substantial stake in the public company.
Acquiring capital from an ample range of investors has some advantages over-relying on angel investors, as most Pvt. Ltd. companies will prefer a facilitate growth.
Whereas an angel investor may offer a large amount of capital and expertise, the founders of the company may not be satisfied with the level of influence over the direction of the company that the angel investor will often expect.
Growth and Expansion Opportunities
The assessment of being able to raise funds is in how it can be used to serve the business. By having more finance potentially more voluntarily available and on superior terms than a Pvt. Ltd. company, a public limited company can be in a benefited position to:
- Pursue new products, new markets, or new projects.
- Make capital expenditure to enhance and support the business.
- Make acquisitions either by offering shares to shareholders of the target business or in cash.
- Fund development and research.
- Pay off active debt or replace active debt with new debt on enhanced terms.
- Grow organically.
Public limited company registration offers shareholders the advantage of limited liabilities. Under limited liability, the personal assets of the company’s shareholders are as safe as the personal assets of shareholders cannot be used to pay off the losses or debt of the company.
Shareholders of the company are responsible for their illegal activities. All the directors, shareholders, and members of the company enjoy the benefit of limited liability, and their assets cannot be seized by any government body, creditor, or bank.
Disadvantages of Public Limited Company Registration
More Regulatory Requirements
To protect the rights of the shareholders, the regulatory and legal compliances for a public limited company are more arduous compared to other forms of companies.
If the shares of the company are listed on the stock exchange, the company will also require following the rules and regulations of the market.
These rules, principally those to be listed on National Stock Exchange (NSE), are more stringent.
Ownership and Control Issues
With a Pvt. Ltd. company, the shareholders are mostly the people known to the founders or directors of the company. Pvt. Ltd. companies are selective on admitting shareholders, but in a public limited company the founders or directors cannot choose who to be a shareholder of the company as there is the ease in transferability of shares and anyone can buy shares and become a shareholder of a public limited company.
In a public limited company, there is always a possibility that the directors or the owners of the company may lose control over the direction of the company or there will be unavoidable disputes and the directors have to invest more time in managing the expectations of the shareholders.
Institutional shareholders can have a high level of influence, repeatedly expecting consultation and adoption of various standards and policies in return for their investment in the company.
More Vulnerable to Takeovers
A public limited company becomes more vulnerable to a hostile takeover if the majority of shareholders agree to an offer of the hostile takeover.
The ease of share transferability, a probable bidder, can build up a shareholding in advance of initiation a bid endeavor.
Lack of Secrecy
A public limited company has to maintain transparency in its operations and the general public is involved in the decision making of the company.
Therefore, the secrets of the company are not secrets. The company has to provide details of profits and losses of the company to the general public this affects the secrecy of the company.
There are several benefits of registering a company as a public limited company. Still, at the same time, we cannot ignore the cons of a public limited company so any individual who wants form a public company must go through the pros and cons and take advice from an experienced professional on how to manage the cons and take benefit of pros of a public company.