As per Section 2(71) of the Companies Act, 2013 “Public company” means a company which is not a private company and 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 a subsidiary company continues to be a private company in its articles. Public companies are entities to trade their stocks on the public exchange market in which people like Investors can become shareholders in a public company by purchasing shares of the company’s stock. And the company is considered public since any interested investor can purchase shares of the company in the public exchange to become equity owners of the company. A public company means a company:
- which is not a private company.
- Has a minimum paid-up capital of 5 lakhs or such higher paid-up capital as may be prescribed.
- It is a private company which is a subsidiary of a company which is not a private company.
HOW DOES A PUPLIC COMPANY WORK?
A public company is a company with equity and debt owned and traded by the general public through the public capital markets. Some basic requirements in a public company are that there should be Minimum 7 shareholders and 3 directors are necessary. And for a Public Limited Company, the name must end with the word “Limited”. Before the procedure of registration, the name of the company should be approved by all Directors and Subscribers are necessary and the rules and regulations are most stringent as compared to the Private limited company. In a public company, the ownership is shared between the shareholders, including the board, management, and public shareholders.
ADVANTAGE AND DISADVANTAGE OF THE PUBLIC COMPANY
1.Public companies have access to the financial market which can also raise money for expansion and other projects by selling stock or securities.
2.Public companies have the ability to raise funds in the primary and secondary markets by allowing the investor to invest to purchase shares of the company. And which allows the shareholders, financial media, interested investors, and financial analysts to get access to additional information about the company.
3.At the same time, it also allows the management of a company to liquidate some of their equity in the company
Firstly, the company must meet all the various mandatory reporting standards which were set by the government.
Secondly, the ability to access the public capital markets also comes with increased regulatory scrutiny, administrative and financial reporting obligations, and corporate governance bylaws on which public companies must comply.
Finally, once a company is public, it must answer its shareholders. Shareholders elect a board of directors who oversee the company’s operations on their behalf. Which means that the shareholder can control the maximum decision of the company.
REGISTRATION PROCESS OF PUBLIC COMPANY
Public Company registration is a complex procedure as it requires proper documentation which was provided in the company act 2013—
1.There should be a minimum of 7 shareholders and 3 directors for a company.
2.Apply for digital signature certificate and director identification number.
3.Section 12 prescribes the minimum number of members as seven who have to subscribe their names to the memorandum of association but there is no restriction with regard to the maximum number of members of a public company.
CONVERSION OF PRIVATE COMPANY INTO PUBLIC COMPANY
1.Conversion by Default
2.Conversion by Choice in compliance with the statutory requirement
3.Conversion by Operation of Law
The act provides for conversion of public company into a private company and vice versa.
Section 44 provides for conversion of a private company into a public company. The procedure is:
The company in general meeting must pass a special resolution altering its articles in such a manner that they no longer include the provisions of s.3(1) (iii) which are required to be included in the articles of a private company. On the date of the passing of the resolution, the company ceases to be a private company and becomes a public company.
Within thirty days of the passing of the special resolution altering the articles, the company shall file with the Registrar (i) a printed or type-written copy of the special resolution and (ii) a prospectus or a statement in lieu of prospectus. If default is made in filing the resolution and the prospectus or the statement in lieu of prospectus, the company and every officer in default shall be liable to a fine up to 5,000 for every day of default
After analyzing above statement in the light of above context a public company does not have more advantage like private company it has so many limitations and also the decision of company on the hand of the investor which does not give the more privilege to the founder or authorities to take decision freely. The government should make the same amendment and make the same changes for public companies by giving some privilege to public companies.
REFERENCE 1. BOOK
Company law fifteenth edition by Dr Avtar Singh
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