Table of Contents
A public limited company is a type of business structure in India that allows the company to offer its shares to the general public. It is governed by the Companies Act, 2013, and regulated by the Securities and Exchange Board of India (SEBI). Here are some pros and cons of a public limited company in India:
Also read: What are the different forms of businesses in India?
Pros:
Access to capital:
A public limited company can raise funds by issuing shares, bonds, or debentures to the general public through an initial public offering (IPO) or subsequent offerings. This allows the company to access larger pools of capital for growth and expansion.
Limited liability:
Shareholders of a public limited company have limited liability, meaning their personal assets are not at risk to cover the company’s debts and liabilities. The liability of shareholders is limited to the value of their shares in the company.
Perpetual succession:
Like a private limited company, a public limited company has perpetual succession, which means its existence is not tied to the life of its shareholders, directors, or employees.
Enhanced credibility:
Public limited companies are generally perceived as more credible and stable by investors, customers, suppliers, and financial institutions due to their stringent regulatory requirements and public disclosure of financial information.
Transferability of shares:
Shares of a public limited company are easily transferable, allowing shareholders to buy and sell shares in the stock market, which can improve the liquidity of their investment.
Cons:
Compliance requirements:
Public limited companies are subject to numerous legal and regulatory requirements, including annual filings, statutory audits, and adherence to SEBI regulations. These compliance requirements can be time-consuming and costly.
Loss of control:
By going public, the founders and promoters of a company may lose some control over the company’s decision-making and management, as they need to consider the interests of various stakeholders, including shareholders and regulators.
Increased scrutiny:
Public limited companies are subject to increased scrutiny from regulators, shareholders, and the public due to their obligation to disclose financial information and other material information, which may affect their reputation and share price.
Higher costs:
The costs associated with setting up and maintaining a public limited company are generally higher than those of private limited companies or other business structures, due to registration fees, underwriting fees, legal compliance, and professional fees for services like accounting and auditing.
Risk of hostile takeover:
Public limited companies may be more susceptible to hostile takeovers, as their shares are publicly traded, and a potential acquirer can accumulate a significant stake in the company to gain control.
Conclusion:
In summary, the decision to form a public limited company depends on various factors, such as the scale of operations, growth ambitions, and the desired level of access to capital. It is important to consult a legal or financial expert to understand the most suitable business structure for your specific needs.