Eligibility Criteria for Forming a Public Limited Company

Forming a Public Limited Company (PLC) in India involves meeting specific eligibility criteria set by the Companies Act, 2013. These criteria ensure that the company is adequately prepared to meet the responsibilities and obligations of operating as a public entity. Below are the detailed eligibility requirements for forming a Public Limited Company:

Minimum Number of Directors and Shareholders

• Directors: A Public Limited Company must have a minimum of three directors. However, there can be more than three directors, but the maximum number is capped at fifteen. To appoint more than fifteen directors, special resolution approval is required.
• Shareholders: A minimum of seven shareholders is required to form a Public Limited Company. There is no upper limit on the number of shareholders, making it possible for the company to have an unlimited number of investors.

Director Identification Number (DIN) and Digital Signature Certificate (DSC)

• DIN: Each director must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA). This unique number is mandatory for anyone who intends to become a director in any company.
• DSC: The proposed directors must also obtain a Digital Signature Certificate (DSC). This is essential for signing electronic documents during the company incorporation process.

Company Name

• Unique Name: The name of the Public Limited Company must be unique and not identical or similar to any existing company or trademark in India. The name should also comply with the naming guidelines provided by the MCA.
• Approval: The proposed name must be approved by the Registrar of Companies (RoC).

Registered Office Address

• Address Proof: The company must have a registered office address within India. This address is where all official communications and notices will be sent. Proof of the registered office address, such as a utility bill or rental agreement, must be provided.

Capital Requirements

• Authorized Capital: There is no mandatory minimum authorized capital requirement for forming a Public Limited Company as per the Companies Act, 2013. However, companies generally have an authorized capital of at least Rs. 5 lakh (INR 500,000).
• Paid-Up Capital: The company must have a minimum paid-up capital as specified during incorporation. This is the actual capital raised from shareholders, which can be different from the authorized capital.

Memorandum and Articles of Association (MoA and AoA)

• MoA: The Memorandum of Association (MoA) outlines the company's objectives, the scope of activities, and the relationship with shareholders.
• AoA: The Articles of Association (AoA) detail the internal rules and regulations governing the company's operations. Both MoA and AoA must be drafted, signed by the promoters, and filed with the RoC.

Compliance with Regulatory Requirements

• Statutory Declaration: A statutory declaration by a practicing professional (Chartered Accountant, Company Secretary, or Cost Accountant) stating that all the requirements of the Companies Act, 2013 have been complied with must be filed.
• Subscriber Details: Details of the subscribers to the MoA, including their names, addresses, and shares subscribed, must be provided.

Prospectus or Statement instead of Prospectus

• Prospectus: A Public Limited Company intending to invite the public to subscribe to its shares must issue a prospectus. The prospectus must contain detailed information about the company's financial health, business operations, and risk factors.
• Statement instead of Prospectus: If the company does not plan to immediately invite the public to subscribe to its shares, it can file a statement instead of the prospectus.

Compliance with Securities Laws

• SEBI Guidelines: If the Public Limited Company plans to list its shares on a stock exchange, it must comply with the guidelines and regulations of the Securities and Exchange Board of India (SEBI).

Other Legal Requirements

• PAN and TAN: The company must apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
• GST Registration: If the company’s turnover exceeds the threshold limit prescribed under the Goods and Services Tax (GST) law, it must obtain GST registration.

Benefits of Forming a Public Limited Company

Forming a Public Limited Company (PLC) offers numerous advantages, making it a preferred choice for large-scale businesses aiming for growth and expansion. Here are some key benefits:

Access to Capital:

• Public Issue of Shares: A PLC can raise substantial capital by issuing shares to the public. This access to capital is crucial for funding expansion, research and development, and other significant business activities.
• Debentures and Bonds: In addition to shares, a PLC can issue debentures and bonds to raise funds, offering flexibility in its capital structure

Enhanced Credibility:

• Public Perception: Being listed as a PLC increases the company's credibility and trustworthiness in the eyes of investors, customers, suppliers, and financial institutions
• Transparency: PLCs are required to disclose financial information and adhere to strict regulatory requirements, enhancing transparency and reliability

Limited Liability:

• Shareholders' Protection: The liability of shareholders is limited to the amount unpaid on their shares. This means the personal assets of shareholders are protected in the event of the company facing financial difficulties.

Transferability of Shares:

• Easy Transfer: Shares of a PLC can be easily bought and sold on the stock exchange, providing liquidity to shareholders and making it easier for investors to enter or exit the company.

Continuity of Existence:

• Perpetual Succession: A PLC has a separate legal entity from its owners, ensuring its continuity irrespective of changes in ownership or management. The company continues to exist even if the shareholders or directors change.

Expansion and Growth:

• Scale of Operations: The ability to raise significant capital and the enhanced credibility allow a PLC to undertake large-scale operations, explore new markets, and invest in technology and infrastructure.
• Attracting Talent: The public visibility and perceived stability of a PLC make it easier to attract skilled professionals and experienced managers.

Tax Benefits:

• Corporate Taxation: PLCs may benefit from corporate tax rates, which can be advantageous compared to individual or partnership taxation rates
• Deductions and Exemptions: PLCs can avail of various tax deductions and exemptions under the Income Tax Act, of 1961, reducing their overall tax liability.

Conclusion

Forming a Public Limited Company (PLC) is a great option for businesses that want to grow and attract investment. To do this, certain requirements must be met to ensure the company is ready for public operations.

Key points include having at least three directors and seven shareholders, obtaining necessary approvals and registrations like DIN, DSC, and company name, and adhering to regulatory guidelines. These steps help ensure the company is set up correctly and can operate smoothly.

Meeting these requirements allows the company to enjoy benefits such as increased credibility, access to more capital, and protection for shareholders. By following the necessary steps, businesses can successfully establish a Public Limited Company and take advantage of the opportunities it offers