The formation of a Public Limited Company (PLC) differs from a Private Limited Company (Pvt Ltd) in India in terms of ownership, regulatory requirements, public access to shares, and compliance obligations. Here’s an in-depth look at the key differences in the formation process between these two types of companies under the Companies Act, 2013.

1. Number of Members and Directors

• Public Limited Company (PLC):
  • Minimum Members: A PLC requires at least 7 members (shareholders) to form the company.
  • Minimum Directors: A PLC needs at least 3 directors on its board.
  • Maximum Members: There is no limit on the number of shareholders in a PLC, allowing it to raise capital from the general public.
• Private Limited Company (Pvt Ltd):
  • Minimum Members: Requires a minimum of 2 members.
  • Minimum Directors: Requires at least 2 directors.
  • Maximum Members: Pvt Ltd companies can have a maximum of 200 members, restricting them from accessing capital from the general public.

2. Access to Public Investment

• Public Limited Company (PLC):
  • PLCs can raise capital by issuing shares to the public through an Initial Public Offering (IPO), allowing them to be listed on a stock exchange.
  • Shares in a PLC are freely transferable, making it easier to raise funds from the public.
  • PLCs are often subject to SEBI (Securities and Exchange Board of India) regulations if they list on a stock exchange.
• Private Limited Company (Pvt Ltd):
  • Pvt Ltd companies cannot issue shares to the public and are restricted to raising capital privately from members, directors, and close associates.
  • Shares in Pvt Ltd companies are not freely transferable and require approval for transfer, maintaining control over ownership.
  • Pvt Ltd companies are not subject to SEBI regulations, as they do not list on public exchanges.

3. Incorporation Process and Requirements

• Public Limited Company (PLC):
  • Documentation: Similar to Pvt Ltd companies but requires more extensive documentation, especially if planning to go public (e.g., prospectus for IPO).
  • Registration: File the SPICe+ form with the Ministry of Corporate Affairs (MCA) to complete incorporation.
  • Minimum Capital: Although there is no mandatory minimum capital requirement in India, PLCs often start with a significant authorized capital to accommodate potential public investment.
• Private Limited Company (Pvt Ltd):
  • Documentation: Similar incorporation process as a PLC but with fewer compliance requirements.
  • Registration: File the SPICe+ form with MCA for incorporation, including the MOA and AOA.
  • Minimum Capital: No prescribed minimum capital requirement; Pvt Ltd companies generally start with a smaller authorized capital compared to PLCs.

4. Name Requirements

• Public Limited Company (PLC):
  • A PLC must have the term “Limited” at the end of its name (e.g., XYZ Limited), clearly indicating its public company status.
• Private Limited Company (Pvt Ltd):
  • A Pvt Ltd company must include the term “Private Limited” at the end of its name (e.g., XYZ Private Limited), marking it as a private entity.

5. Prospectus Requirement

• Public Limited Company (PLC):
  • PLCs planning to issue shares to the public are required to prepare and file a prospectus with the ROC and SEBI. The prospectus includes financial statements, business objectives, and other critical information to inform potential investors.
  • The prospectus acts as a public document, ensuring transparency and enabling investors to make informed decisions.
• Private Limited Company (Pvt Ltd):
  • Pvt Ltd companies do not issue shares to the public, so they are not required to file a prospectus. All capital-raising activities occur privately with limited disclosure requirements.

6. Compliance and Regulatory Requirements

• Public Limited Company (PLC):
  • Annual General Meetings (AGMs): PLCs must hold AGMs within six months of the financial year-end to discuss financial results, dividend distribution, and appoint or reappoint directors and auditors.
  • Quarterly Financial Reports: PLCs that are listed must submit quarterly financial reports and adhere to SEBI’s disclosure and reporting guidelines.
  • Audit Committees: Listed PLCs must have audit committees and other governance committees, as required by SEBI, for corporate governance.
  • Transparency and Disclosure: Higher level of disclosure and transparency is required, including detailed annual reports, shareholder communications, and corporate governance standards.
• Private Limited Company (Pvt Ltd):
  • AGMs: Pvt Ltd companies must also hold AGMs but face fewer disclosure and transparency requirements compared to PLCs.
  • Financial Reporting: Pvt Ltd companies are not required to submit quarterly reports, as they do not operate on a public exchange.
  • Audit Requirements: Audit requirements are less stringent unless specified by the Companies Act for larger Pvt Ltd companies.

7. Financial and Shareholder Compliance

• Public Limited Company (PLC):
  • Shareholder Protection: Shareholders in a PLC have specific protections under SEBI regulations, including rules for investor protection and anti-fraud measures.
  • Dividend Distribution: PLCs declare dividends in AGMs, and listed PLCs are required to maintain transparent records of dividends.
  • Independent Directors: Certain PLCs, particularly those listed, are required to have independent directors on the board to enhance corporate governance.
• Private Limited Company (Pvt Ltd):
  • Shareholder Agreements: Shareholder agreements are often more restrictive to control shareholding changes and maintain the private nature of the company.
  • Dividend Policy: Pvt Ltd companies are more flexible with dividends, as there are fewer statutory requirements for dividend distribution.
  • Independent Directors: Independent directors are not mandatory for Pvt Ltd companies unless specified for larger companies.

8. Conversion Options

• Public Limited Company (PLC):
  • PLCs can convert into private companies if they meet certain criteria and receive approval from the ROC, shareholders, and any relevant authorities.
  • Delisting: If a listed PLC chooses to go private, it must follow SEBI’s delisting regulations, ensuring fair treatment of public shareholders.
• Private Limited Company (Pvt Ltd):
  • Pvt Ltd companies can convert into PLCs if they intend to go public and raise capital from the general public. This involves altering the Memorandum of Association (MOA) and Articles of Association (AOA) and filing for conversion with the ROC.
  • Requirements for Conversion: The company must meet specific criteria, including increasing the number of members and directors and modifying its compliance processes to align with PLC requirements.

9. Post-Incorporation Compliance

• Public Limited Company (PLC):
  • Listing Process: If a PLC wants to be listed on a stock exchange, it must comply with SEBI’s IPO guidelines, requiring extensive disclosures, due diligence, and compliance with listing norms.
  • Quarterly and Annual Filings: Listed PLCs are required to submit quarterly filings to the stock exchanges and maintain transparency with shareholders through regular disclosures.
  • Registrar of Members and Shares: Must maintain a detailed register of members and any changes in shareholding to comply with SEBI and Companies Act requirements.
• Private Limited Company (Pvt Ltd):
  • Simpler Filing Requirements: Pvt Ltd companies are only required to submit annual returns, financial statements, and other mandatory filings with fewer reporting obligations than PLCs.
  • Limited Public Disclosure: Pvt Ltd companies are not required to make their financials or operational details public, enabling greater privacy and control over their business.
  • Shareholding Record Maintenance: Pvt Ltd companies maintain shareholder records but with fewer statutory requirements.

10. Compliance Costs

• Public Limited Company (PLC):
  • Higher Compliance Costs: Due to SEBI regulations, periodic disclosures, audit committees, and annual shareholder meetings, compliance costs for a PLC are significantly higher.
  • Additional Regulatory Filings: PLCs must budget for regulatory filings, SEBI fees, and possibly legal fees associated with public listing and investor relations.
• Private Limited Company (Pvt Ltd):
  • Lower Compliance Costs: Pvt Ltd companies face fewer compliance requirements and, as a result, incur lower costs related to annual filings, audit expenses, and shareholder communications.
  • Reduced Reporting Burden: Without the need for quarterly reports or adherence to SEBI guidelines, private companies save on regulatory compliance costs.

Conclusion

The formation of a Public Limited Company and a Private Limited Company in India involves some common steps under the Companies Act, 2013, but with significant differences in terms of shareholding, public access, compliance requirements, and regulatory oversight. Public Limited Companies are suited for businesses looking to raise capital from the public and willing to comply with extensive regulatory and disclosure obligations, while Private Limited Companies are ideal for smaller businesses or family-owned businesses prioritizing control and privacy.

Understanding these distinctions helps entrepreneurs and businesses select the most suitable structure based on their growth objectives, regulatory tolerance, and capital-raising strategies