What are the four characteristics of a public stock company that make it an attractive?

A Public Limited Company is a company with limited liability and offers shares to the general public. Further the stock of Public Limited Company can be acquired by anyone through IPO or via trades. In this article we will discuss major characteristics of a Public Limited Company.

Definition of Public company

A public company as per Section 2(71)-

• A company which is not a private company.
• A company whose minimum paid up capital is Rs. 5, 00,000.
• The company being subsidiary of a company, which is not being a private company it shall be a public company for the purposes of the act.

What are the major characteristics of a Public Limited Company?

Some of its major characteristics are as follows:

• Separate Legal Entity:

A Public Company is a legal entity that has separate identity from its shareholders/members.

• Easy Transferability

This means that a shareholder of public limited company can easily transfer its shares to the public. There is no restriction on the transferring shares to the public or inviting the public to subscribe shares to the public.

• Perpetual Succession

The company can never come to an end. This means that the members/ directors/ shareholders may come and go, but the company never becomes non-existent. Due to the death or disability, the company never dies. It continues till the company is not closed or liquidated.

• Limited Liability

The liability of the shareholders/directors is limited to the extent of the shares owned by them. The shareholders are not liable personally in case of losses or debts suffered by the company. 

• Paid-Up- Capital

The minimum paid up capital required by public company to start its operations are Rs 5, 00,000. This is the new amendment as per the Companies Act, 2013[1].

• Name

In the name of the public company, the word “LTD” will be prefixed at the end of the name.

• Directors

In case of public company, the number of directors can be minimum 3 and maximum can be as many. There is no above limit.

They must only possess the Director Identification Number (DIN) which is issued by the Ministry of Corporate Affairs (MCA).

• Prospectus

The registration of public limited company can issue a prospectus for inviting the public to subscribe to its shares.

Prospectus is the statement comprising the detail information about the company and the number of shares invited by the company in that particular IPO or subsequent listing.

• Borrowing capacity

The attraction point of the public company is that it can borrow from various sources. A public company can issue Debentures (secured or unsecured) and raise the money. It can issue shares (equity or preference) to the public. Even banking and other financial institutions give the loans/ financial aid to the company.

• Number of Members

The minimum number of members in the public company required is 7 and for maximum there is no limit.

• Board of Directors

The minimum number of BOD required is 3 and maximum is 12. They are elected by shareholders in the Annual General Meeting.

• Voluntary Association

It is easy to buy shares in the public company and so it is as easy to exit the public company.  

• Minimum Subscription

The minimum amount which has to be received on the subscription of shares has to be 90 percent of the shares in the public company. When the company is not able to receive the 90 percent amount then they cannot continue with the business.

• Minimum subscribers

The minimum subscriber to the Memorandum of Association of Public Company has to be 7.  They are the members of the company.

• Certificate of Commencement

While in the case of public company, this is an important document which has to be acquired by the public company before starting the business. In case of private company, the Certificate of Incorporation was the last document required. However in case of a public company, the Certificate of Incorporation as well as Certificate of commencement is required both.

• Memorandum of  Association

The MOA is a major document in the formation of public company. A private company can start its business after making only Articles of Association. Whereas for the public company the Memorandum is its important document which has to be submitted to MCA as well in the registration of the company.

Memorandum is defined in section 2(56) of Companies Act 2013. It states the main objectives of the companies that is, the main businesses which the company is going to undertake.

Comparison between Public Company V/S Private Company

Conclusion

Looking at the current market and growing economy, forming a public company is a good option. It is always considered an appropriate for the business which has a large amount of capital to invest. By inviting public to subscribe share, it improves the capital of the company. It helps in reducing the overall risk of the company, as capital is invested in the diversified number of securities. It ultimately gives, the growth opportunities to the company.

Read our article:Difference Between Private and Public Limited Company

Sonal Pruthi

She is B.Com (H), LL.B LLM, Cs (Module 2) And Certification In Cyber Law From ILI Qualified. She has Been A Legal Teacher In The Previous Organization. My Strength Is My Expertise Knowledge In Civil Laws, Corporate Law And Tax Laws. I Have Been Legal Teacher And Legal Trainer In The Past Organization. Her Knowledge About The Subjects Have Expanded Due To Teaching Number Students From Various Universities All Over India.

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