Small businesses can be run comfortably with a sole proprietorship or a partnership firm, but if the business is big or the business is growing, then we need more resources, and as the business grows, the risk also increases. To solve this problem, the concept of a private company was established, but the problem is that a private company is not suitable for extra-large businesses, and it restricts transferring shares to a large number of people and raising capital from them. To solve this problem, the concept of a public company was established.
Public company or public limited company is governed by the law of the nation, for example in India the Companies Act, 2013 governs all the matters related to the public company, and to form a public company many requirements need to be fulfilled such as number of members and directors, legal documents, legal formalities etc. and if all the necessary requirements are fulfilled then the business is registered as a public company.
Table of Contents
What is a Public Limited Company?
A public limited company is a type of company and a business form that is governed by law and requires a minimum of seven members and a minimum of three directors for its formation. There is no maximum limit of members, but the maximum limit of directors is fifteen, which can be increased by passing a special resolution. It is a public company and its ownership is publicly spread, and most of the public companies are listed on the stock exchange.
According to 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.”
The members of a public limited company get limited liability facility and the company gets separate legal entity which distinguishes it from the member and the company, which gives it the right to hold property in its own name, sue in its own name, have a common seal in its own name, etc. and the company is required to use a name suffix after its name, i.e., “Ltd” or “Ltd.”, which helps to understand the type of company.
Public limited company needs to appoint statutory auditor who audits the company’s books, and if applicable, also needs to appoint other qualified individuals to check and maintain compliance in the company and this is a costly task; this is why incorporation as a public limited company is costly to run the business. Note: If the company does not comply with the rules, it leads to legal challenges.
| Minimum Number of Members | 7 |
| Maximum Number of Members | No Limit |
| Perpetual Succession | Yes |
| Separate Legal Entity | Yes |
| Limited Liability | Yes |
| Ability to Sue | Yes |
| Transferability of Shares | Yes |
| Capacity of Ownership | Yes |
| Minimum Number of Directors | 3 |
| Maximum Number of Directors | 15 |
| Public or Private | Public |
| Name suffix | Limited or Ltd. |
Features of a Public Limited Company
Following are the features of a public limited company:
1. Members and Directors:
A public limited company has a minimum of seven members and three directors, and there is no maximum limit of members, but the maximum limit of directors is 15; however, the number of directors can be increased by passing a special resolution. It is mandatory to always maintain the required number of members and directors; non-compliance may lead to legal action.
| Particulars | Minimum Limit | Maximum Limit |
| Members | 7 | No Limit |
| Directors | 3 | 15 |
2. Separate Legal Entity:
A public limited company is a separate legal entity, which means the company is an artificial person and has a legal identity in the eyes of the law. When a business is registered as a public limited company, it is granted the status of a legal entity by law, which differentiates it from its members. Using this, the company can own property in its own name, sue in its own name, etc.
3. Limited Liability:
In a public limited company, the liability of the members is limited, i.e., the members are protected from unlimited liability, but the member is liable to the extent of his share or guarantee, which depends on the nature of the company. This facility is not available in an unlimited company, and if the members are found guilty of the loss caused to the company, then the liability of the member becomes unlimited.
4. Perpetual Succession:
Perpetual succession means continuity, according to which members may come and go, but the company will continue, unless wound up, and this is possible due to the separate legal entity. This feature protects the existence of the company from the joining of a new member and the leaving of an old member because the joining or leaving of a person in other business forms other than the company affects the existence of the business.
5. Ability to Sue:
A public limited company is a separate legal entity and has a separate legal identity in the eyes of the law, which gives the company the right to sue anyone in its own name. When the business is registered as a company, the separate legal identity is provided by the law, and it also gives the company the right to perform various other actions in its own name.
6. Capacity of Ownership:
A public limited company has the capacity of ownership as it has a separate legal identity. When the business is registered as a public limited company, the business gets a separate legal identity in the eyes of the law, under which the company can buy and sell assets in its own name.
7. Name:
In a public limited company, it is mandatory to use a name suffix, i.e., “Limited” or “Ltd.” after the company name. For example, if a company’s name is JKL, then after adding the name suffix, it will become “JKL Limited” or “JKL Ltd.” Note: The use of a name suffix is mandatory for all public companies; failure to use it may result in a penalty, but some exceptions also apply.
8. Transferability of Shares:
Members of a public limited company enjoy the right to transfer shares, which means that members can freely transfer their shares without any restrictions. This is possible because there are no restrictions on the transfer of shares in a public limited company, but the trading of shares is regulated by law, and if the company is listed, it is governed by the Securities Exchange Board of the country.
Read Also:
- What is the Company? Meaning, Features and More.
- Advantages and Disadvantages of the Company
- Types of Companies under the Companies Act, 2013
- One Person Company: Meaning, Features, and More.
- Private Limited Company: Meaning, Features, and More.
- Incorporation of a Company: Meaning, Procedure, Advantages and Disadvantages, etc.
- Corporate Veil Theory
QNA/FAQ
Q1. What is a public limited company?
Ans: A public limited company is a type of company and a business form that is governed by law.
Q2. What is the minimum and maximum number limit of directors in a public limited company?
Ans: The minimum number of directors in a public limited company is three, and the maximum number is fifteen.
Q3. What is the minimum number of members in a public limited company?
Ans: The minimum number of members in a public limited company is seven.
Q4. Is there any maximum number limit of members in a public limited company?
Ans: No, there is no maximum number limit of members in a public limited company.
Q5. Write the features of a public limited company.
Ans: Following are the features of a public limited company:
1. A minimum of seven members is required.
2. A minimum of three directors is required.
3. The business enjoys a separate legal identity.
4. The members enjoy a limited liability facility.
5. The business enjoys perpetual succession.
6. The business is entitled to file a suit in its own name.
7. The business enjoys proprietary capacity.
8. The business is required to use the name suffix.
9. There is no restriction on the transfer of shares.
10. There is no maximum limit of members.
11. The maximum number of directors is fifteen.
