Introduction:
According to the Companies Act, 2013, a “company” means a company incorporated under the Act or any previous company law. As such there is no proper definition of company is given under the Act. But in common terms a company is an entity formed by group of individuals for a particular purpose. And companies are legal entity too. The companies must be registered under The Ministry of Corporate Affairs. There are various types of companies such as public company, private company, one person company, limited liability partnership. All the types of companies have different procedure for formation and registration. There are 4 stages of formation of a company. The promotion stage, incorporation stage, capital subscription stage and commencement of business stage are the 4 stages. Private company and public company not having any share capital can commence the business just after the incorporation. But the public company having a share capital has to pass through all the 4 stages to commence the business. This article will explain the process of formation of a public company in detail.
What is a public limited company?
If we go by the definition given in the Indian Companies Act, 2013, a “public company” means a company which is not a private company. This means any company which is not a private company is a public company. Again, there is no clear definition of public company in the Act. Public companies are governed by the Indian Companies Act, 2013.
The Public Limited Company (PLC) are also considered as Limited Liability Company (LLC), this is so because they have limited liability and offers shares to the general company. It is not necessary to list a company on a stock market; they can be listed or unlisted. These companies are strictly regulated and are required to publish their financial health to the shareholders.
According to Section 149 of the Companies Act, 2013, a minimum number of 3 directors are required to start a public limited company and there is no limit on the number of maximum number of directors. One of the greatest advantages of a PLC is that it can raise the capital through issuing of public shares and hence there is limited liability on each shareholder. The phrase limited liability means that a shareholder is not personally responsible for any loss or debts of the company more than the amount invested by him in the company. For example, if a shareholder’s investment in a company is 1/120, then the liability on the shareholder is the same, the liability cannot be more than that.
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Though the liability is limited this does not give immunity to the shareholders, they’ll be held responsible for their wrongdoings. The minimum paid up capital must be Rs. 5 lakhs or higher amount that is provided under the Act. Since the PLCs invite public to subscribe for their shares, they need to issue a prospectus. According to Section 4 of the Act says that a PLC is required to add the word “limited” at the name of the Act.
Advantages:
There are few advantages such as more capital, attention, spreading risk and growth and expansion opportunities. In a PLC subscribers are general public and shares are offered to them and hence a large number of people can invest in a public limited company. And this enhances the capital of the company. When a company is listed in any stock market it gets a considerable amount of attention and increases the business opportunity of the company. Since the subscribers for the shares are the general public and huge number of subscribers even out the risk and the risk spreads. As the risk spreads there are less chances of the company to suffer losses, there is an opportunity for the company to grow and expand the business and can invest in new projects with the money gained through shares.
Formation process:
Stage 1: Application for Director’s Identification Number and Digital Signatures Certificate (Section 153 to 158)
Every individual must adhere to the Companies (Director Identification Number) Rules, 2006 for applying to DIN. Every to be director of a company shall make an application for allotment of DIN to the central government in proper form, manner and fees. Then the central government on receiving the application shall allot the DIN to the applicant within one month. One individual who already received the DIN shall not apply for another DIN. The company after receiving the DIN for all the directors must inform the Registrar within 15 days.
Stage 2: Name Approval
The company needs to select at least one suitable name up to a maximum of 6 names, and the name shall not resemble the name of any other already registered company and should not violate the provisions of emblems (Prevention of Improper Use Act, 1950). This can be done by checking the name on the portal. Find the availability of name in the e-Form 1A by logging in to the portal and apply to the Registrar of Companies (ROC). A fee of Rs. 500/- has to be paid and the digital signature of applicant proposing for the name has to be attached. After the approval of the name the applicant can apply for the registration of the company within 60 days of the name approval.
Stage 3: Registration of the company
An application containing the main object clause of the company shall be made. MOA, AOA, duly filled Form DIR – 12, Form INC – 7 and Form INC – 22, needs to be submitted in application to ROC. These MOA and AOA shall be signed by at least 2 subscribers and witnessed by at least one person.
Documents required for incorporation:
- Proof of identity of all the shareholders and directors
- Proof of address of all the directors and the shareholders
- PAN number of all the shareholders and directors
- Utility Bill of the proposed office i.e. proposed registered office for the company
- A NOC (No Objection Certificate) from the landlord where the office of the company will be situated
- Director Identification Number (DIN) of all the directors
- Digital Signature Certificate (DSC) of the directors
- Memorandum of Association (MOA)
- Articles of association (AOA)
Conclusion:
A “company” means a company incorporated under the Act or any previous company law. The companies must be registered under The Ministry of Corporate Affairs. There are various types of companies such as public company, private company, one person company, limited liability partnership. There are 4 stages of formation of a company. The promotion stage, incorporation stage, capital subscription stage and commencement of business stage are the 4 stages. The Public Limited Company (PLC) are also considered as Limited Liability Company (LLC), this is so because they have limited liability and offers shares to the general company.
References:
1. The Companies Act, 2013 § 153, No. 18, Acts of Parliament, 2013 (India).
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