PUBLIC LIMITED COMPANY: AN OVERVIEW

The word company, in simple words, is a commercial business. It goes by various names depending upon the types of business like firm, corporation, etc. If we want to understand the term in legal way, a company means “a society or association of persons, in considerable number, interested in a common object and uniting themselves for the prosecution of some commercial or industrial undertaking or other legitimate business” (Black’s Law Dictionary).

Companies in India are governed by the Companies Act. The Act defines company as “a company incorporated under this Act or under any previous company law”. There are various forms of business entities in India like Private limited Company, Public Limited Company, Unlimited Company, Sole Proprietorship, Joint Hindu family business, Partnership, Cooperatives, Limited Liability Partnership, etc. This article will discuss in detail about the Public Limited Companies.

MEANING AND DEFINITION

Section 2 (71) of the Companies Act 2013 defines Public Company. It says that-

“Public Company” means a company which-

1. Is not a private company;
2. Has a minimum paid-up share capital ****** (the minimum paid-up capital has been omitted and as of now, there is no such minimum requirement) 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 public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles”

Thus a public limited company is a voluntary association which has a separate legal existence and the liability of its members is limited.

FORMATION

Where the company is a public company, seven (7) or more members are required to form it by subscribing their names to a memorandum and complying with the requirements of the Companies Act in respect of registration. It company can be either:

1. Limited by shares; or
2. Limited by guarantee; or
3. An unlimited company.

 MEMORANDUM

1. The memorandum of a public limited company shall state-

1. The name of the company with the last word “Limited”. For example: Coal India Limited;
2. The State in which the registered office of the company is situated;
3. The objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. It has mainly 3 categories: Main objective, incidental objectives (ancillary to attain the main objects) and other objectives.
4. The liability of members of the company, whether limited or unlimited;
5. In the case of a company having a share capital-

1. The amount of share capital and the division thereof;
2. The number of shares each subscriber to the memorandum intends to take;

1. The name stated in the memorandum shall not-

1. Be identical with or resemble too nearly to the name of an existing company registered under the Act or any previous company law;
2. Be such that its use by the company will either constitute an offence under any law or is undesirable in the opinion of the Central Government.

ARTICLES

The articles of a company shall contain the regulations for management of the company. A company may adopt all or any of the regulations contained in the model articles applicable to such company. It is the base for internal governance of a company and contains details like powers and duties of directors, auditors, transmission of shares and debentures, etc. Further, Companies Act mentions the provision of entrenchment in the Articles of Association. Entrenchment basically means “a process or fact becoming so firmly established that change is very difficult or unlikely”. Thus by adding the entrenchment clause, amendments or changes in the company becomes difficult.

INCORPORATION

1. There shall be filed with the Registrar the following documents and information for registration:

1. The memorandum and articles of the company duly signed by all the subscribers to the memorandum;
2. A declaration by an advocate, a chartered accountant, cost accountant or company secretary in practice (engaged in the formation of a company), and by a person named in the articles as director, manager or secretary of the company, that all the requirements of the Act and rules made there under have been complied with;
3. An affidavit from each of the subscribers to the memorandum and from the persons named as the first directors that he is not convicted of any offence in connection with the promotion, formation or management of any company, not been found guilty of any fraud during the preceding 5 years and that all documents filed contain information that is correct and true to the best of his knowledge and belief;
4. The address for correspondence till its registered office is established;
5. The particulars of name, residential address, nationality along with proof of identity;
6. The particulars of persons mentioned in the articles as the first directors, their names, Director Identification Number, residential address and other such particulars as prescribed;

REGISTERED OFFICE OF COMPANY

1. A company shall, on and from the fifteenth (15^th) day of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
2. The company shall furnish to the Registrar verification of its registered office within a period of thirty (30) days of its incorporation in such manner as may be prescribed.

PROSPECTUS AND ALLOTEMENT OF SHARES

A public company may issue securities-

1. To public through prospectus (“public offer”) by complying with the provisions of the Act;
2. Through private placement 
3. Through a rights issue or bonus issue and in case of a listed company, in accordance with the provisions of the Securities and Exchange Board of India Act, 1992 and the rules and regulations made there under.

SHARE CAPITAL AND DEBENTURES

The share capital of a public company limited by shares shall be of two kinds:

1. Equity share capital
2. Preference share capital

The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of association of the company and shall be distinguished by its distinctive number. A company may issue debentures with an option to convert such debentures into shares either wholly or in part at the time of redemption (buy back).

MANAGEMENT AND ADMINISTRATION

Register of members

Every public company shall keep and maintain the following registers:

1. Register of members indicating separately for each class of equity and preference shares held by each members residing in or outside India;
2. Register of debenture-holders;
3. Register of any other security holders.

Every such register shall include an index of the names included therein. If a company does not maintain a register of members or fails to maintain them in accordance with the provisions of the Act, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than fifty thousand rupees (INR 50,000) but which may extend to three lakh rupees (INR 3, 00,000) and if the failure continues, than with a further fine which may extend up to one thousand rupees (INR 1,000) per day.

APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

Every public company shall have a minimum number of three (3) directors and a maximum number of fifteen (15) directors. A company may appoint more than 15 directors after passing a special resolution. There shall be, at least one (1) director who has stayed in India for a total period of not less than 182 days in the previous calendar year. 

Every listed public company shall have at least one-third of the total number of directors as independent directors (a director other than the managing director, whole-time director or a nominee director) and the Central Government may prescribe the minimum number of independent directors in case of any class of public companies. 

Disqualifications:

A person shall not be eligible for appointment as a director of a company, if-

1. He is of unsound mind and stands so declared by a competent court;
2. He is an undischarged insolvent;
3. He has applied to be adjudicated as an insolvent and his application is pending;
4. He has been convicted by a court of an offence, whether involving moral turpitude or otherwise.

ANNUAL RETURN

Every company shall prepare a return at the close of the financial year regarding- 

1. Its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
2. Its shares, debentures and other securities and shareholding patterns;
3. Its indebtedness;
4. Its members and debenture-holders along with changes therein since the close of the previous financial year;
5. Its promoters, directors, key managerial personnel along with changes therein;
6. Meetings of members or a class thereof, Board and its various committees along with attendance details;
7. Remuneration of directors and key managerial personnel;
8. Penalty or punishment imposed on the company, its directors or officers and details of compounding offences and appeals made against such penalty or punishment;
9. Matters relating to certification of compliances, disclosures as may be prescribed;

Every company shall file with the Registrar a copy of the annual return within sixty (60) days from the date of which the annual general meeting is held failing which the company will have to pay an additional fee and a fine not less than fifty thousand rupees (INR 50,000) which may extend up to five lakh rupees (INR 5, 00,000).

AUDIT AND AUDITORS

Every public company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its 6^th annual general meeting and thereafter till the conclusion of every 6^th meeting. Appointment here includes re appointment.

No listed company shall appoint or re-appoint-

1. An individual as auditor for more than 1 term of 5 consecutive years;
2. An audit firm as auditor for more than 2 terms of 5 consecutive years.

Companies Act 2013 sets out the provisions for all kind of companies. In that regard, Public companies share a lot of similarities with private companies with only a few differences apart from which the process and workings of both types of companies are discussed together throughout the Act.