Public Limited Company: Benefits or Challenges?

Many entrepreneurs are drawn to the idea of creating a public limited company due to its prestige and added protections. However, maintaining a business requires more effort. Private companies are owned by their executives, simplifying decision-making, while publicly traded ones must consider multiple stakeholders, making decisions more complex.

Public limited company advantages and disadvantages

A public limited company (PLC) is a business entity characterized by limited liability, where shares are available for purchase by the general public. These are also commonly referred to as publicly traded companies. In this article, we will enhance your knowledge of Public limited company advantages and disadvantages.

7 Compelling advantages of public limited company

1. Cultivating Capital through the Public Sale of Shares

The primary allure of operating as a public limited company is its capacity to amass capital by issuing shares to the general public, particularly when the company is listed on a reputable exchange. This can result in a substantially larger infusion of capital compared to a private limited company. Furthermore, listing on an exchange can draw investment from hedge funds, mutual funds, and other institutional investors.

2. Diversifying Shareholder Base and Spreading Risk

Making shares available to the public affords the opportunity to distribute ownership risk among a large pool of shareholders. This enables early investors to potentially sell some of their shares at a profit while still maintaining a significant stake in the company. Diversifying sources of capital is a favorable alternative to relying on a few "angel investors" who often demand substantial influence over the company's direction.

3. Access to Alternative Funding Opportunities

Public limited companies often find themselves in a more advantageous position when exploring other potential sources of financing. Maintaining a stock exchange listing can bolster a company's creditworthiness when issuing corporate debt, attracting favorable terms. Financial institutions may be more inclined to provide financing, and negotiations for interest rates and repayment conditions may prove more favorable.

4. Facilitating Growth and Expansion

The capacity to raise finance is instrumental in fueling business development. Public limited companies, potentially benefiting from more readily accessible and favorable financing options compared to private counterparts, are well-situated to:

• Pursue new projects, products, or markets.
• Invest in capital expenditures to bolster business growth.
• Engage in acquisitions, either through cash transactions or share offerings.
• Fund research and development initiatives.
• Retire or refinance existing debt on more favorable terms.
• Foster organic growth.

5. Elevating Prestige and Confidence

Incorporating 'plc' into a company's name can impart a sense of stature and prestige that private firms may not possess. This perception of being more established and influential can impact how the business is perceived by customers, suppliers, and employees. Public limited companies generally benefit from heightened visibility, attracting attention from the media and investment professionals, resulting in enhanced brand recognition and potentially increased sales.

6. Facilitating Share Transfer

Shares in public limited companies exhibit greater ease of transfer than their private counterparts, offering shareholders increased liquidity. This transferability advantage can attract investors and simplify situations such as share inheritance, streamlining share transmission in accordance with testamentary provisions.

7. Crafting an Exit Strategy

Going public can expand the array of exit options available to founders in the future. Greater share transferability and heightened business visibility may attract prospective acquirers, enhancing the likelihood of receiving acquisition proposals.

Public limited company advantages and disadvantages

Consider 6 disadvantage of public limited company

1. Stringent Regulatory Compliance

Public Limited Companies (PLCs) are subject to a higher degree of regulatory scrutiny compared to private companies. For instance, PLCs are obligated to maintain a minimum of two directors and undergo regular audits of their financial statements. These regulations are designed to ensure continuous alignment with shareholder expectations.

2. Diminished Control

The transition to a public company entails a loss of control for business owners. PLCs must adhere to legal regulations, limiting the flexibility in making business decisions. Financial institutions and shareholders become partial owners and influence the decision-making process.

3. Short-Term Focus

The relentless pursuit of meeting expectations often leads to short-termism within PLCs. This means they frequently prioritize immediate results over long-term strategies. Balancing the demands of institutional shareholders with long-term planning becomes a challenging endeavor.

4. Complex and Costly Financial Reporting

• Maintaining accurate financial records becomes a more complex task within a PLC. Many executives may need to hire additional personnel, such as a company secretary, to manage the intricacies of financial reporting. This increased workload can lead to higher overhead costs.
• Utilizing online accounting software like FreshBooks can streamline this intricate process. Additionally, consulting an accountant with expertise in PLCs can help manage their unique financial needs.

5. Risk of Hostile Takeovers

Financial troubles within a public limited company can lead to a decline in its share price, making it an attractive target on the stock exchange. While this might initially appear advantageous, it comes with the risk of a hostile takeover. A single bidder may acquire a significant portion of the company's shares, gaining substantial control over its operations.

6. Heightened Disclosure Requirements

Public companies are required to maintain a high level of transparency. PLCs must promptly publish their financial reports and annual accounts within six months of the fiscal year-end. Additionally, they are obligated to hold annual general meetings to keep all shareholders informed about company developments.

Public limited company registration process

Requirements for Public Limited Company Registration

Several rules and regulations are outlined in the Companies Act, 2013, governing the establishment of a public limited company. Here are the key considerations when registering a public limited company:

1. A minimum of 7 shareholders is necessary to establish a public limited company.
2. A minimum of 3 directors is required for the formation of a public limited company.
3. A minimum authorized share capital of Rs. 1 lakh is mandatory.
4. When submitting self-attested copies of identity and address proof, a director's Digital Signature Certificate (DSC) is essential.
5. Directors of the proposed company must obtain a Director Identification Number (DIN).
6. The company's name must adhere to the provisions of the Companies Act and Rules.
7. Essential documents include the Memorandum of Association (MOA), Articles of Association (AOA), and a duly completed Form DIR-12.
8. Payment of the prescribed registration fees to the Registrar of Companies (ROC) is obligatory.

Public limited company registration process

Registration Procedure for a Public Limited Company

Step 1: Digital Signature Certificate (DSC)

Given that the company registration process is entirely conducted online, digital signatures are imperative for submitting forms on the MCA portal. Every proposed director and subscriber of the memorandum and articles of association must possess a DSC.

Step 2: Director Identification Number (DIN)

DIN is a unique identification number for directors and must be obtained by individuals aspiring to become directors in a company. The proposed director's DIN, along with their name and address proof, must be specified in the company registration form.

Step 3: MCA Portal Registration

To apply for company registration, a completed SPICe+ form must be submitted on the MCA portal. Company directors need to register on the MCA portal to fill out the SPICe+ form and submit the necessary documents. Once the registration process is complete, directors gain access to MCA portal services, enabling them to file e-forms and view public documents.

Step 4: Certificate of Incorporation

Upon submission of the registration application and relevant documents, the Registrar of Companies will review the application. After verification, the Registrar will issue the Certificate of Incorporation for the Public Company. Following the receipt of the Certificate of Incorporation from the ROC, the company should also apply for the 'Certificate of Business Commencement.

Public limited company registration fees

The Public limited company registration fees for a public limited company depend on the country, as well as the company's size and structure. Entrepreneurs can refer to website Offshore Company Corp for guidance. We will also provide additional documents to prepare when registering for a public limited company so that entrepreneurs can have a comprehensive understanding and estimate the appropriate costs for their company's needs.

Some documentation necessary for the formation of a Public Limited Company include:

1. Verification of identity for all shareholders and directors.
2. Verification of address for all directors and shareholders.
3. PAN (Permanent Account Number) of all directors and shareholders.
4. Utility bill for the proposed office, which is the intended registered office of the company.
5. A No Objection Certificate (NOC) from the property owner where the company's office will be located.
6. Director Identification Number (DIN) for all directors.
7. Digital Signature Certificate (DSC) for the directors.
8. Memorandum of Association (MOA).
9. Articles of Association (AOA).

Conclusion

Operating as a public limited company offers distinct advantages, such as access to capital and limited liability, but it also comes with disadvantages, including increased regulatory requirements and potential loss of control. Understanding the registration process and associated fees is crucial for those considering this business structure. Ultimately, the decision to become a public limited company should align with the company's long-term goals and strategic vision.