Public Limited Company Compliance | Introduction and Benefits

Minakshi Bindhani

01 Mar, 2023

A proper assessment of the benefits of a Public Limited Company will be necessary for entrepreneurs who wish to establish their startup as a Public Company, as well as for an existing business looking forward to getting converted into a Public Limited Company.

What is a Public Limited Company?

A Public Limited Company is one of India’s many preferred business structures. And incorporated under the Companies Act 2013^[1]. That provides limited liability to its owners and shareholders. The shares are traded on public platforms like the stock exchange and are open for sale to the general public.

The Ministry of Corporate Affairs and the Securities and Exchange Board of India (SEBI) regulate the company. It is subject to stringent laws by these regulatory agencies and regularly updates the shareholders on its financial situation.

As a legally incorporated entity, a  company has a distinct legal identity and is entitled to the right to hold properties and assets in its name.

Benefits

Large companies generally take a Public Limited Company as an organisational structure with huge revenue-earning potential and a broad consumer base in the country of origin and other foreign nations. A company’s huge preference among entrepreneurs establishes that it has a wide range of advantages for all its stakeholders.

Raising capital through the public issue of shares

The capacity to raise share capital through a public issue of shares is the most obvious benefit of a Public Company, especially when the company is listed on a reputable stock exchange platform. The amount of capital raised is often substantially more than that of a Private Company, where the sale of shares is wholly restricted on public platforms. Other than the general public, institutional investors such as mutual funds, hedge funds, and other traders, who are also listed on these platforms, contribute to Public companies’ funds on the stock exchange platforms.

Enhancing the Diversity of Owners and Distributing Risks

A company must have at least seven shareholders who have bought its shares to become a Public Company. To become a public company, there is no maximum limit on the number of shareholders of the company to sell the shares. Moreover, a Public Company sells its shares to institutional investors and the general public, for which it is listed on publicly accessible stock exchange platforms. It indicates that a  company has the most diverse range of owners or shareholders. The risks the company would face in due course of operations shall be widely distributed among all these shareholders. Contrarily, there are business structures where the burden of the adverse risk is only the owner or a few owners of the business.

Additional Fundraising Possibilities

Companies which usually adopt a Public Company as their business structure conduct large-scale operations and hence, have massive potential for growth and expansion. It makes it easy for a Public Company to raise equity/share capital funds through multiple other channels like credit from banks and financial companies, bonds, debentures, crowdfunding, etc.

Moreover, it has its legal identity and can be listed on stock exchange markets, making it more credible and reliable for investment. Additionally, the business is better positioned to negotiate advantageous interest rates and loan payback arrangements.

Enhanced Credibility

• Having a Public Company in an organisational structure can add to its stature and reputation. A Public Company exudes an aura in the business world that any other type of company cannot, and this can impact how the public perceives the company. This perception of being more established, extensive, or powerful can influence the customers, suppliers, and workers behave.
• Since the sale of shares is open to the general public, and the company is listed on a publicly accessible platform like the stock exchange platform, people are highly likely to know about it. The media and financial experts are more likely to notice it. It leads to free advertising or promotion of the company and more people to be aware of the business and its products/services. More sales may result from increased brand recognition.
• The reliability and credibility of a Public Company are further enhanced by the following:
• Operating in many regions under a stricter legal environment than private businesses
• More significant funding and investment needs

Enhanced Transparency

The indirect endorsement due to listing on a recognised stock exchange platform

Flexibility in Share Transfer

Transferring shares in a Public Company is way more accessible and flexible than in a Private Limited Company. The shares issued by the Public  Company can be listed and traded on any stock exchange market. The sale of these shares is open to the general public as well. Moreover, unlike a Private Limited Company, where the shares are to be transferred to the existing shareholders to purchase, and they refuse, the option is to transfer the shares to another investor. In contrast, a Public  Company does not have to follow any such restriction in transferring its shares.

Shareholders’ varied interests and insights

Depending on the scale of the business, becoming a Public  Company is an invitation to partial ownership to extended hundreds or even thousands of people. These people now have direct involvement in the company’s critical decisions and have the chance to share their ideas based on their expertise in various subjects. It could enhance the efficiency and effectiveness of the company.

Limited Liabilities of Shareholders

Like a Private Limited Company, a Public Company also restricts or limits the liability of its shareholders upto the amount of capital they have invested in the company. Suppose a Public Company accumulates liabilities like debts in its name. In that case, the shareholder shall not be liable to pay more than the unpaid or due amount of the capital he has subscribed to under any circumstances. It is a massive benefit for the shareholders, compared to other unlimited businesses, where the owner does not have an option but to pay the business’s total liability, sometimes from his pocket.

Conclusion

The ability to sell shares on the stock exchange platforms and the high credibility of setting up a Public Limited Company are just some of the benefits that Public Limited Companies enjoy. Ultimately, the stability and risks the business faces will determine whether or not you decide to opt for a Public Company structure. The benefits of a Public Limited Company can significantly boost growth and open new development opportunities for the business.

Also Read:
Characteristics of Public Limited Company
Difference Between Private and Public Limited Company