Public Limited Company

Introduction

A Public Limited Company is a type of corporate entity that is allowed to offer its shares to the general public, often through stock exchanges. This structure provides a range of advantages such as limited liability, broader access to capital, and increased public confidence. Understanding the eligibility criteria for registering a Public Limited Company is crucial for businesses aiming to leverage these benefits. This detailed exploration covers the criteria for eligibility, the registration process, compliance requirements, and other pertinent factors.

Understanding the Public Limited Company Structure

A Public Limited Company (PLC) is a corporate entity distinct from its owners, providing limited liability protection, meaning the personal assets of shareholders are protected from the company’s debts and liabilities. This structure allows for a separate legal entity, perpetual succession, and a clear distinction between ownership and management. Public Limited Companies are required to comply with stringent regulatory requirements and are overseen by the Securities and Exchange Board of India (SEBI) when listed on stock exchanges.

Eligibility for Registering a Public Limited Company

Who Can Register

Individuals or Groups:

Indian Citizens: Any individual who is an Indian citizen and over the age of 18 can register a Public Limited Company. This includes both resident and non-resident Indians.

Foreign Nationals and NRIs: Foreign nationals and Non-Resident Indians (NRIs) can also register a Public Limited Company in India. They must comply with the Foreign Exchange Management Act (FEMA) regulations and obtain necessary approvals from the Reserve Bank of India (RBI).

Partnership Firms and Limited Liability Partnerships (LLPs): These entities can convert into a Public Limited Company, provided they comply with the specific conversion procedures outlined in the Companies Act.

Other Companies: Existing companies can register a new Public Limited Company as a subsidiary, provided they meet the necessary requirements.

Minimum Requirements:

Directors: A minimum of three directors are required to form a Public Limited Company, and at least one of them must be an Indian resident. The maximum number of directors is fifteen, but this can be increased by passing a special resolution.

Shareholders: A minimum of seven shareholders are necessary, with no upper limit on the maximum number of shareholders. Directors and shareholders can be the same individuals.

Capital: The minimum paid-up capital requirement for a Public Limited Company is INR 5 lakh (approximately USD 7,000). This threshold can be higher depending on specific industry regulations and business objectives.

Documentation:

Identity Proof: PAN card for Indian nationals, and passport for foreign nationals.

Address Proof: Aadhaar card, voter ID, or passport for Indian residents; utility bills or bank statements for foreign nationals.

Registered Office Proof: Recent utility bills or rent agreement and a no-objection certificate from the property owner.

Digital Signature Certificate (DSC): Required for signing electronic documents.

Director Identification Number (DIN): Required for all proposed directors.

Who Cannot Register

Ineligible Individuals:

Minors: Individuals below the age of 18 cannot register a Public Limited Company or serve as its directors.

Undischarged Insolvents: Individuals who have been declared insolvent and have not been discharged are not eligible to participate in the registration or management of a Public Limited Company.

Individuals with Criminal Records: Persons convicted of an offense involving moral turpitude or any offense and sentenced to imprisonment for more than six months are barred from registering or serving as directors for five years from the date of expiry of the sentence.

Persons Disqualified by Law: Individuals who are disqualified under the Companies Act, 2013, or any other prevailing law from being appointed as directors cannot register a Public Limited Company. This includes individuals debarred by SEBI or other regulatory bodies.

Entities with Incompatible Objectives:

Non-Profit Objectives: Entities or individuals intending to pursue non-profit activities must register under Section 8 of the Companies Act, 2013, and not as a Public Limited Company. The objectives of a Public Limited Company must be for-profit business activities.

Banned or Restricted Activities: Entities or individuals involved in activities banned or restricted by law (such as illegal activities, high-risk sectors without proper licenses) cannot register a Public Limited Company for such purposes.

Legal and Regulatory Restrictions:

Entities Barred by Orders: Any person or entity legally barred or restricted by an order, judgment, or legal stipulation from forming a company is ineligible to register a Public Limited Company.

Failure to Meet Minimum Requirements: Entities or individuals who fail to meet the basic eligibility criteria such as minimum number of directors or shareholders, or who do not have the necessary documentation, cannot proceed with the registration.

The Registration Process

Registering a Public Limited Company involves several steps, from obtaining necessary approvals and documentation to complying with statutory requirements.

Step 1: Name Approval

The first step in registering a Public Limited Company is obtaining name approval from the Ministry of Corporate Affairs (MCA). The proposed name should be unique and comply with the naming guidelines set by the MCA.

Application: Apply for name approval using the RUN (Reserve Unique Name) service on the MCA portal.

Submission: Propose two names in the order of preference.

Approval: The Registrar of Companies (RoC) will approve the name if it is found to be unique and relevant to the company’s objectives.

Step 2: Digital Signature Certificate (DSC) and Director Identification Number (DIN)

Before proceeding with the incorporation, it is mandatory for the proposed directors to obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN).

Digital Signature Certificate (DSC): A DSC is required to sign electronic documents and forms submitted to the MCA. It can be obtained from certified agencies authorized by the Controller of Certifying Authorities (CCA).

Director Identification Number (DIN): DIN is a unique identification number for directors issued by the MCA. Apply for DIN using Form DIR-3 if the directors do not already have one.

Step 3: Incorporation Documents

The next step involves preparing and filing the necessary incorporation documents.

Memorandum of Association (MOA): The MOA outlines the objectives for which the company is incorporated.

Articles of Association (AOA): The AOA contains the rules and regulations for the management of the company.

Step 4: Application for Incorporation

File the incorporation form SPICe+ (Simplified Proforma for Incorporating a Company Electronically Plus) along with MOA, AOA, and other necessary documents.

SPICe+ Form: This form simplifies the incorporation process by integrating several services, including name reservation, DIN allotment, incorporation, PAN, TAN, and GSTIN.

Documents Required:

Identity proof and address proof of all directors and subscribers.

Proof of the registered office address.

Consent to act as a director in Form DIR-2.

Declaration by professionals in Form INC-8.

Declaration by subscribers in Form INC-9.

Step 5: Certificate of Incorporation

Once the application is submitted and approved, the RoC will issue the Certificate of Incorporation, granting the Public Limited Company its legal status.

Company Identification Number (CIN): The RoC will allot a unique CIN to the company.

Commencement of Business: The company can commence its operations upon receiving the Certificate of Incorporation.

Compliance Requirements

Public Limited Companies must adhere to various compliance requirements under the Companies Act, 2013, to maintain their legal status and enjoy the associated benefits.

Annual Compliance:

Annual General Meeting (AGM): Public Limited Companies must hold an AGM within six months from the end of the financial year. The notice of the AGM must be sent to all members, directors, and auditors.

Financial Statements: Prepare financial statements, including the balance sheet, profit and loss account, and cash flow statement, in accordance with Schedule III of the Companies Act. The financial statements must be audited by a Chartered Accountant.

Annual Return: File the annual return in Form MGT-7 with the RoC within 60 days from the date of the AGM. The return should include details of the company’s directors, members, and financial information.

Income Tax Return: Public Limited Companies must file an income tax return annually, regardless of whether they are taxable.

Event-Based Compliance:

Change in Directors: File Form DIR-12 with the RoC within 30 days of any change in the board of directors.

Change in Registered Office: Notify the RoC of any change in the registered office address using Form INC-22 within 30 days of the change.

Increase in Share Capital: File Form SH-7 within 30 days if there is an increase in the company’s share capital.

Allotment of Shares: Report the allotment of shares using Form PAS-3 within 30 days of the allotment.

Other Compliance:

Maintenance of Statutory Registers: Public Limited Companies must maintain various statutory registers, including the register of members, register of directors and key managerial personnel, and register of contracts.

Minutes of Meetings: Maintain minutes of all board meetings and general meetings in accordance with the Companies Act.

Audit of Accounts: The financial statements of a Public Limited Company must be audited by a Chartered Accountant.

Filing of Financial Statements: File the financial statements with the RoC using Form AOC-4 within 30 days from the date of the AGM.

Additional Compliance for Listed Companies:

Listing Agreement: Compliance with the listing agreement as prescribed by the stock exchange.

Quarterly Financial Results: Submission of quarterly financial results to the stock exchange.

Corporate Governance: Adherence to corporate governance norms as per SEBI guidelines.

Disclosure Requirements: Timely disclosure of material information to the stock exchange.

Advantages of a Public Limited Company

Limited Liability: The liability of shareholders is limited to their shareholding, protecting personal assets from business liabilities.

Separate Legal Entity: A Public Limited Company is a distinct legal entity, separate from its members, allowing it to own property, incur debts, and enter into contracts in its own name.

Perpetual Succession: The company continues to exist regardless of changes in ownership or management, ensuring stability and continuity.

Ease of Raising Capital: A Public Limited Company can raise capital through the sale of shares to the general public, attracting investors and venture capitalists.

Credibility and Recognition: Being listed on a stock exchange enhances the credibility and trustworthiness of the company, making it easier to secure loans and attract business partners.

Enhanced Opportunities for Growth: Access to broader capital markets provides ample opportunities for expansion and diversification.

Tax Benefits: Public Limited Companies may avail various tax benefits and deductions under Indian tax laws.

Disadvantages of a Public Limited Company

Regulatory Compliance: Public Limited Companies are subject to stringent regulatory compliance, which can be time-consuming and require professional expertise.

Cost of Formation: The cost of forming and maintaining a Public Limited Company is higher compared to other business structures like sole proprietorships or partnerships.

Disclosure Requirements: Public Limited Companies must disclose financial and operational information to regulatory authorities, which is accessible to the public, potentially compromising confidentiality.

Limited Flexibility: The management and operational flexibility of a Public Limited Company are restricted by the Companies Act and other regulatory frameworks.

Risk of Hostile Takeover: Being publicly traded, shares can be purchased on the open market, which might lead to the risk of a hostile takeover.

Burden of Corporate Governance: Adherence to stringent corporate governance norms and compliance with SEBI guidelines requires dedicated resources and continuous monitoring.

Increased Scrutiny: Public Limited Companies are under constant scrutiny from regulators, shareholders, analysts, and the public, which can be burdensome.

Conclusion

Registering a Public Limited Company in India offers numerous benefits, including limited liability, separate legal entity status, ease of raising capital, and increased public confidence. However, it is crucial to understand and comply with the eligibility criteria and legal requirements to ensure a smooth registration process. Individuals and entities that meet the necessary conditions can take advantage of this business structure to establish a secure and scalable enterprise. Conversely, those who do not meet the criteria or are legally barred must explore alternative business structures or rectify their ineligibilities to pursue their entrepreneurial ambitions.

The detailed understanding of who can and cannot register a Public Limited Company, the intricate registration process, and the compliance requirements provide a comprehensive guide for prospective business owners. This business structure, while complex, offers significant advantages that can propel business growth and success. However, it demands adherence to regulatory norms and diligent compliance to maintain its status and leverage its benefits fully. As such, prospective registrants should carefully consider their eligibility, prepare the necessary documentation, and engage professional advice to navigate the legal landscape effectively.