Public Company – Overview and Incorporation Process

A Public Limited Company registration in India is the best suitable business structure for entrepreneurs who are planning for large-scale business operations. To register a Public Limited Company in India there should be a minimum of seven members and there is no limit on the maximum number of members/shareholders for starting a Public Limited Company.

The shares can be acquired by anyone through initial public offerings or through stock market trade. Such offerings are beneficial in raising capital for the company. The rules and regulations are most stringent as compared to the Private limited company. This is because the funds invested in the company also belong to the public.

1. Meaning of Public Company

As per Section 2(71) of the Companies Act, 2013- “Public company” means a company which

(a) is not a private company and;

(b) has a minimum paid-up share capital as may be prescribed

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.

2. Points to be kept in mind before incorporating a Public Company in India

a. Minimum 7 shareholders and 3 directors are necessary.

b. For a Public Limited Company, the name must end with the word “Limited”.

c. Before the procedure of registration, the name of the company should be approved by ROC.

d. DSC of all Directors and Subscriber are necessary.

e. The rules and regulations are most stringent as compared to the Private limited company.

3. Benefits of Registering a Public Limited Company

• Limited Liability of the shareholders

In Public Company registration, the liability of the shareholder and Directors is limited to the extent of the shares they hold in the company. For example, if the company suffers from any financial contingencies because of primary business activity, then in such case personal assets of shareholders and Directors will not be snatched by the Banks, creditors, and government.

• Raising the capital through Public Issue

In the case of Public Company Registration, the proposed company can raise funds through the Public.

• Separate Legal Entity

Shareholders and Directors may come and go, but the existence of the company continues to exist. i.e., the absence of movement of any shareholder in the company will not affect the existence of the company.

• Unlimited source of raising funds

The company has an unlimited source of raising funds through the Public which results in the pursuance of new projects and for capturing the new market.

• Easy Transferability

The shares of a public limited company are easily transferable. Shares of the company are listed on a stock exchange; the shareholders find it is easy to transfer the share in the company. In the case of Public Company Registration, shareholders are less bound to remain with the company, which results in making people more willing to invest.

• Maintains the Transparency

Because of Public involvement, the company publishes its statutory details and reports to maintain greater transparency and also to provide accurate information of its current financial position.

• Maintains the Brand Position

Being registered as a Public Company improves the brand position of the Company. Listing the shares of the company in the stock exchange enhances the brand position and reputation of the company.

4. Disadvantages of Public Company Registration

• Lack of Flexibility

Flexibility always acts as a strength to every organization, but in the case of a public company, there is no such advantage. Every public company is bound by the rules and regulations, which results in a lack of flexibility in its operations.

• Lack of secrecy

To maintain the transparency and trust of the shareholders, the company provides full disclosure to the public due to which secrecy cannot be maintained. The Public is involved in decision-making, the company cannot maintain the secrecy.

• Suitability

A public company is only favorable to large-scale businesses which is a disadvantage to small-scale industries.

• High Costs

Registering the company as a Public Company requires a huge cost. To start a public company huge investment, time, and procedural things are required to be complied with. The profit of the company depends upon the investment you have done.

5. Registration Process of Public Company

Public Company registration is a complex procedure as it requires proper documentation. The working of the Public Company is subject to more strict compliances of the provision of the Companies Act 2013.

a. Recognizing 7 shareholders and 3 directors

For Public Limited Company Registration, a minimum of 7 shareholders and 3 directors are required. Shareholders can be individuals, companies, or LLPs, but only individuals can become directors of the company. It is not necessary that the director shall be the shareholder of the company and shareholders need not necessarily be the directors of the company.

b. Apply for Digital Signature Certificate and Director Identification number.
For company registration, (Also in the case of Public Company Registration) an applicant can apply for DIN through SPICE+ Form only. The requisite details of proposed Directors not having DIN must be filled into SPICE+ Forms.

However, in the case the company is already in existence, DIR-3 can be filled for the appointment of the director not having DIN. For the same, an applicant who intends to be appointed as director of the company already in existence shall make an application electronically in form DIR-3 to the Central Government[1] for allotment of DIN along with such fees as provided under the Companies (Registration Offices and Fees) Rules, 2014.

c. Apply for name availability either through RUN web form or through SPICE+ form Directly

d. Spice Form – Company Incorporation Form

Arrangement of requisite documents required for registering a public company, I.e. Details of the Subscriber and Directors (ID and Address Proof), Registered Office address documents.

Once the documents are prepared, they need to be submitted to the ROC for verification and after verification, the ROC registers the company and issue the incorporation certificate along with the CIN of the Company.

The business cannot be started immediately after receiving the COI. The business has to apply for a certificate of commencement within 180 days of the COI stating that all the subscribers have paid the subscription money through Form INC-20A.

6. FAQ’s – Frequently Asked Question-related to Public Company and its Incorporation Process

1. Whether it is mandatory for every subscriber and/or director to obtain DSC at the time of incorporation?

Ans. Yes, in case the number of subscribers and/or directors to eMoA and eAoA is up to twenty and all such subscribers and/or directors have DIN/PAN, it shall be mandatory for each one of them to obtain a DSC.

2. What are the exceptional scenarios in which pdf attachments of MOA and AOA should be used instead of eMoA, eAoA with SPICe+ (INC-32)?

Ans. The maximum number of subscribers allowed shall be 7 for filing of the SPICe+ form. Wherever the number of subscribers exceeds 7, the SPICe+ form shall be filed with MoA and AoA as attachments.
If you incorporating a public company with more than 7 subscribers then, you have to submit MOA and AOA as attachments.

3. Is a company name search necessary for public company registration?

Ans. A unique company name is essential for a public company registration because it distinguishes the company from the existing ones and should not match with the existing registered company names.

4. Are GST and PF automatically applicable to Public Limited Companies?
Ans. No, there is no automatic applicability. GST or PF will be applicable only after your cross a certain minimum threshold.

5. Can an NRI/Foreign National be a director or Shareholder in a Public Limited Company? and if yes, then what are the conditions for the same?

Ans. Yes, an NRI or Foreign National can also be a shareholder or director in a public limited company of India and for becoming a director, besides the basic requirement of being an adult as well as such person must possess the DIN issued by MCA.

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