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Advantages and Disadvantages of Public Limited Company Registration

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Public Limited Company Registration

In uplifting the Indian economy, Private Limited Company registration has played an essential role as it gave the local businessman a chance of growth in the market and created numerous jobs in the country and helped in maintaining the Industrial base and Substantial capital. Public limited company registration has some advantages, but at the same time, we cannot ignore the disadvantages of public limited company registration.

What is a Public Limited Company Registration?

The Companies Act of 2013 governs the process of public limited company registration. There are strict compliances for the public limited company registered under the provisions of the Act and an individual to follow every rule of law mentioned in the Act for registration of a public limited company. The company has massive capital as it can offer shares to the general public through Initial Public Offerings (IPO) or by trading the shares on the stock market.

Key Features of Public Limited Company Registration

Below mentioned are the features of the public limited company registration:

  • A public Limited company requires a minimum of three directors and seven shareholders at the time of registration.
  • The name of the public limited company must end with the word “Limited.”
  • A public limited company has no restrictions on the maximum limit of shareholders it can have.
  • A public limited company can accept deposits from the general public.
  • In a public limited company, shares are freely transferable.

Advantages of Public Limited Company Registration

 

Limited Liability

In a public limited company the liability of the Directors and Shareholder is limited to the share, they hold in the company which means that if in future the proposed company is going through a bad face and is not able to make profits and pay debts than the personal assets of Directors and Shareholder will not be sold by the creditors, banks or the government. By registering a public limited company, the directors and shareholder can run their business without stressing about the personal assets.

Capital can be Raised by Public Issue.

A registered public limited company can raise funds by offering shares to the public through Initial Public Offerings or through trading shares on the stock market. A private limited company cannot raise funds by public offerings; this benefit is only available in a public limited company.

Unlimited Resources for Raising Funds

A public limited company has unlimited resources for raising through the general public, which can open various ways to capture new markets and pursuance new projects.

Easy Transferability

Public limited company registration also avails the benefit of easy transfer-ability of the shares. The shares of a public limited company are listed on the stock exchange; hence it makes it easy for the shareholders to transfer the shares in the company. In the case of a public limited company, shareholders are not bound to remain with the public limited company, so it makes people more willing to invest in a public limited company.

Maintains Transparency

In a public limited company, there is public involvement as the company raise funds through public offerings the company has to publish its statutory information, reports and has to provide correct details of the current financial status to maintain transparency with the public and the authorities to prevent any fraud or financial loss to the public.

Maintains Brand Position

If a public limited company is registered as per the provisions of the Companies Act of 2013, it will improve the overall brand position of the company. When the shares of a public limited company are registered on the stock market, it will improve the brand position and the goodwill of the company.

Disadvantages of Public Limited Company Registration 

Lack of Flexibility

Flexibility is the strength of every organization, but a public limited company does not have this advantage. A public limited company has to follow a wide range of rules and regulations and is bound by several laws, so this results in inflexibility in its operations.

Lack of Secrecy

A public limited company has to maintain trust and transparency with the shareholders of the company. The company has to provide every detail about the company to the public, which affects the secrecy of a public limited company.  In a registered public limited company public is involved in the process of decision making, so the company cannot uphold the secrecy.

Ownership and Control Issues

In a public limited company, it’s harder to control who can be a shareholder of the company and to whom the directors of the company are accountable. In a public limited company, there is always the chance that the directors of the company can lose control of the company, which increases the company’s dispute, and the directors have to spend more time and energy managing the company’s shareholders’ expectations.

Institutional shareholders can have a high level of influence over the company that can affect the company’s decision-making as an institutional shareholder can ask for adaptation of new policies in return for their investment.

Financial Commitment

The financial commitment of a limited public company is higher in comparison to a private limited company. The private limited company has to start with huge nominal share capital and have to keep a large sum as paid-up capital, which means that a large amount of invested capital will be committed to the business. Cost related to the formation of the public limited company is also higher as the public company requirements are complex. The company has to pay investment and legal professionals a reasonable amount for their advice and in listing the company’s share on the stock market.

Conclusion

Every type of company has its own pros and cons, whether it a public limited company or a private limited company. We can see that there are some crucial benefits for a public limited company which is not available to any other form of company, but at the same time, we cannot ignore the fact that there some disadvantages also. So it highly advisable that a person who wants to form public limited company registration must consult with an experienced professional who can give better advice and guide you through the process.