Public Limited Company

A limited company grants limited liability to its owners and management. Being a public company allows a firm to sell shares to investors this is beneficial in raising capital. A minimum of three Directors are required for establishing a Public Limited Company and it has more stringent regulatory requirements compared to a Private Limited Company.

Public Limited Companies are those types of companies where minimum number of members is seven and there is no cap on the maximum number of members. A public limited company has most of the characteristics of a private limited company. A public limited company has all the advantages of private limited company and the ability to have any number of members, ease in transfer of shareholding and more transparency. Identifying marks of a public limited company are name, number of members, shares, formation, management, directors and meetings, etc.

Advantages of public Limited Company

As a limited company, a Public Limited Company shares the advantages of a limited company with its private counterpart. But there are also specific features of a public limited company, many of which reinforce one another, that give it some unique advantages:

1. Raising capital through public issue of shares

The most obvious advantage of being a public limited company is the ability to raise share capital, particularly where the company is listed on a recognized exchange. Since it can sell its shares to the public and anyone is able to invest their money, the capital that can be raised is typically much larger than a private limited company. It’s also possible that having stock listed on an exchange could attract investment from hedge funds, mutual funds and other institutional traders.

2. Widening the shareholder base and spreading risk

Offering shares to the public gives the opportunity to spread the risk of company ownership among a large number of shareholders. This may allow early investors in the company to sell some of their own shares at a profit while still retaining a substantial stake in the company.

Obtaining capital from a wide range of investors has some advantages over relying on one or two “angel investors”, as many private companies will choose to do to facilitate growth. While an angel investor may provide a large amount of capital and expertise, the founders may not be comfortable with the level of influence over the company’s direction that the angel will often expect.

3. Other finance opportunities

As well as share capital, a public limited company will often find itself in a better position when looking at other potential sources of finance. The demands of being a public limited company and maintaining a stock exchange listing, for example, can help to improve a company’s creditworthiness when issuing corporate debt (and therefore reduces the return the company needs to offer investors). Banks and other financial institutions may be more willing to extend finance to a public limited company, particularly one that is listed. The company could also be in a better position to negotiate favorable interest rates and repayment terms on loans.

4. Transfer ability of shares

The shares of a public limited company are more easily transferable than those in the private equivalent, meaning shareholders benefit from liquidity. If shares are quoted on a stock exchange, shareholders and potential shareholders will generally find it easier to transfer shares in the company – although the market still relies on willing purchasers and sellers being available.

The fact the shareholders are less bound to remain with the company can give them comfort – and may help the company by making people more willing to invest.

Without restrictions on transfer ability of shares that often apply in private companies, it’s also easier to deal with situations like a shareholder’s death, allowing shares to be transmitted in line with the terms of any will.

Here is a list of features that differentiate a public company from a private limited company:

FeaturesPrivate Limited CompanyPublic Limited Company
Minimum Members27
Minimum Directors23
Maximum Members200Unlimited
Minimum Capital1,00,0005,00,000
Invitation to PublicNoYes
Issue of ProspectusNoYes
Quorum at AGM2 Members5 Members
Certificate for Commencement of BusinessNoYes
Term used at the End of NamePrivate LimitedLimited
Managerial RemunerationCan not exceed more than 11% of net profitsNo Restriction
Statutory meeting (Mandatory)​NoYes