Understanding Public Limited Companies in India: A Comprehensive Guide

Public Limited Companies (PLCs) in India represent a significant segment of the corporate world. These companies are publicly traded and offer their shares to the general public through stock exchanges. This guide delves into the formation, advantages, disadvantages, compliance requirements, and taxation of Public Limited Companies in India.

WHAT IS A PUBLIC LIMITED COMPANY?

A Public Limited Company (PLC) is a type of company that offers its shares to the public and has limited liability. It is characterized by having a larger number of shareholders and being able to raise capital from the public through stock exchanges.

KEY CHARACTERISTICS

1. Limited Liability: Shareholders’ liability is limited to the amount they have invested in the company.

2. Separate Legal Entity: The company is distinct from its shareholders and can own assets, incur liabilities, and enter into contracts in its own name.

3. Perpetual Succession: The company continues to exist even if shareholders or directors change.

4. Transferability of Shares: Shares can be freely transferred, which allows for easy entry and exit of investors.

5. Public Access to Capital: The ability to raise funds from the public by issuing shares.

FORMATION OF A PUBLIC LIMITED COMPANY

Steps to Register a PLC

1. Obtain Digital Signature Certificate (DSC): The proposed directors must obtain a DSC for filing forms online.

2. Acquire Director Identification Number (DIN): All directors must obtain a DIN.

3. Name Approval: Apply for the desired company name through the Ministry of Corporate Affairs (MCA) portal.

4. Drafting Memorandum of Association (MoA) and Articles of Association (AoA): These documents outline the company’s objectives and operational guidelines.

5. Filing with RoC: Submit the incorporation documents, including MoA, AoA, director and shareholder details, and proof of the registered office, to the Registrar of Companies (RoC).

6. Certificate of Incorporation: Upon verification, the RoC issues the Certificate of Incorporation, signifying the formation of the PLC.

Documentation Required

 For Indian Directors and Shareholders

• Passport size photo

• PAN Card

• Aadhaar Card/Driving License/Passport/Voter ID

• Latest Bank Statement

In case of foreign Directors and Shareholders:

• Passport size photo

• Passport (apostilled from Indian Embassy)

• Latest Bank Statement or Electricity Bill (apostilled from Indian Embassy)(must have the full name and complete address of the director/shareholder)

For Registered Office Address:

• Latest Electricity Bill

• Registered Rent Agreement, if the office address is rented

• NOC from the owner

ADVANTAGES OF A PUBLIC LIMITED COMPANY

1. Limited Liability Protection: Shareholders are only liable to the extent of their investment in the company.

• Benefit: Protects personal assets from being used to settle business debts.

• Example: If the company faces bankruptcy, shareholders’ personal properties remain secure.

2. Separate Legal Entity: A Public Limited Company is a distinct legal entity separate from its owners.

• Benefit: The company can own property, incur debt, sue, and be sued in its own name.

• Example: The company can enter into contracts independently of its shareholders.

3. Perpetual Succession: The company continues to exist even if the shareholders or directors change.

• Benefit: Ensures continuity and stability, regardless of changes in ownership or management.

• Example: The death of a shareholder does not impact the company’s existence.

4. Ease of Capital Raising: Ability to raise large amounts of capital by issuing shares to the public.

• Benefit: Facilitates growth and expansion by attracting a wide range of investors.

• Example: A company can issue an Initial Public Offering (IPO) to raise funds from the public.

5. Enhanced Credibility: Being listed on a stock exchange enhances the company’s credibility and trustworthiness.

• Benefit: Increases trust from investors, banks, and other stakeholders.

• Example: A listed company is often perceived as more reliable, attracting better business opportunities.

6. Liquidity of Shares: Shares can be freely bought and sold on the stock exchange.

• Benefit: Provides liquidity to shareholders, making it easy to buy and sell shares.

• Example: Shareholders can quickly convert their shares into cash by selling them on the stock market.

7. Access to a Wider Pool of Investors: Ability to attract a diverse range of investors, including institutional and retail investors.

• Benefit: Broadens the investor base, providing more opportunities for raising funds.

• Example: Institutional investors such as mutual funds and pension funds can invest in the company’s shares.

8. Potential for Growth and Expansion: Increased capital and resources enable the company to explore new markets and expand operations.

• Benefit: Accelerates business growth and market penetration.

• Example: Funds raised through the stock market can be used to open new branches or invest in research and development.

9. Transferability of Shares: Shares can be easily transferred without affecting the company’s operations.

• Benefit: Simplifies the process of buying and selling ownership stakes.

• Example: An investor can sell their shares to another investor without disrupting the company’s activities.

10. Professional Management: The requirement to have a board of directors ensures professional management and governance.

• Benefit: Enhances decision-making and operational efficiency.

• Example: The board of directors, composed of experienced professionals, oversees the company’s strategic direction.

DISADVANTAGES OF A PUBLIC LIMITED COMPANY

1. Extensive Compliance Requirements: Subject to stringent regulatory and compliance norms.

2. Higher Formation and Maintenance Costs: Incorporation and ongoing operational costs are higher than other business structures.

3. Disclosure and Transparency: Mandatory to disclose financial and operational information to the public.

4. Risk of Hostile Takeovers: Shares can be freely bought on the stock exchange.

5. Regulatory Scrutiny: Subject to close scrutiny by regulatory authorities.

REGULATORY COMPLIANCE FOR PUBLIC LIMITED COMPANIES

1. Annual General Meeting (AGM):

• Requirement: Must hold an AGM within six months of the end of the financial year.
  

1. Annual Filings:

• Requirement: File annual returns and financial statements with the RoC.

• Details: Includes details of shareholders, directors, and financial performance.

1. Board Meetings:

• Requirement: Must hold a minimum of four board meetings annually.

• Details: Ensure regular oversight and decision-making.

1. Quarterly Financial Reporting:

• Requirement: Listed companies must publish quarterly financial results.

• Details: Provides transparency to shareholders and potential investors.

1. Compliance with SEBI Regulations:

• Requirement: Listed companies must adhere to the regulations set by the Securities and Exchange Board of India (SEBI).

TAXATION FOR PUBLIC LIMITED COMPANIES

1. Corporate Tax Rates:

• Standard Rate: 22% (plus surcharge and cess) for companies not availing any exemptions.

• New Manufacturing Companies: 15% (plus surcharge and cess) for companies incorporated after October 1, 2019.

1. Minimum Alternate Tax (MAT):

• Rate: 15% of book profits (plus surcharge and cess) for companies availing certain exemptions.

1. Dividend Distribution Tax (DDT):

• Abolished: From April 1, 2020. Dividends are now taxed in the hands of shareholders.

1. Advance Tax:

• Requirement: Companies must pay advance tax in four installments if their tax liability exceeds INR 10,000.

CONCLUSION

Public Limited Companies (PLCs) in India offer significant advantages, including limited liability, ease of raising capital, enhanced credibility, and liquidity of shares. However, these benefits come with higher compliance requirements, increased costs, and the need for greater transparency. Understanding the formation process, regulatory compliance, and taxation of PLCs is crucial for entrepreneurs and businesses looking to leverage this business structure. By carefully weighing the advantages and disadvantages, companies can determine if a Public Limited Company is the right choice for their growth and strategic objectives. Consulting with legal and financial experts can further ensure that all statutory obligations are met and the business is set up for success.

To register a Public Limited Company, click here.