Formation of a Public Limited Company:- According to the companies ordinance (1984) public limited company means a company, which is held by its articles of association.
- Each share holder is entitled to transfer his shares of ownership without the consent of other members.
- The minimum number of its member is 7 and no maximum limit.
- It is allowed to invite general public to buy the shares by the issuance of prospectus.
- A Heavy amount of capital is required in the formation of public company
Formation of Public Limited Company
The stages which are involved in the process of formation of a Public limited company are as under:-
- Promotion Stage
Promotion phase is the first phase of a company formation. It includes all the activities, which are essential for a company to start a business. It is the combination of ideas which leads a business at the level of operation. The critical steps in this phase of company formation are given below:-
- Discovery of Business opportunity.
- Detailed investigations.
- Assembling different factors.
- Preparation of essential documents.
The above mentioned activities identify clear physical structure after carrying out in a business, but any business at this level cannot begin. It requires legal status, which is only possible through registration and the said process called Incorporation.
- Incorporation Stage.
Incorporation is the second phase for formation of a public company, in which a company is gone under the registration process. The supporter needs to arrange relevant documents and submit the same with the registrar for the amalgamation of a company. These essential documents are as follow:-
- Not less than seven members of the company must sign Memorandum of Association.
- Not less than seven members of the company must sign Articles of Associations.
- Promoters need to have submitted the requisite prospectus or a statement which is often called in lieu of prospectus with the registrar.
- A complete detail of directors regarding willing to act his role in business along with by each of them duly signed.
- The location / address of the office of registered company must be noticed.
- The prescribed filling fee and payments of duly on share capital must be submitted along with original challan receipts.
- A declaration regarding fulfillment of registration in accordance with the provision of Companies Ordinance and also approved by at least one of the authority called secretary.
- Declaration certificates of nominated director’s.
The above all documents along with the requisite filling fee must be submitted with the registrar. Firstly the registrar will scrutinize entire documents on their receipt, and satisfied himself with the requirements under the law, and if it shows satisfactory result, he will register the company in the Register of Companies Ordinance and issue a certificate which may be called “Certificate of Incorporation”. This Certificate is a major evidence of the facts of the Companies Ordinance requirements, but business cannot start at this level.
- Subscription Stage
In case of Private Limited Company where business can be start on collection of certificate of Incorporation. On the other side, a public limited company must undertake another essential requirement to begin his business i.e. “Certificate of commencement of business”. This phase of company formation is connected with the given key steps:-
- It is essential that invitation has been made to general public to subscribe for the shares by issuing prospectus.
- A statement which may be called in lieu of prospectus with the registrar has been submitted, in case of no prospectus has been issued.
- Commencement Stage
This stage of public limited company is consists of the following documents:-
- A declaration on account that payment of whole amount subject to share held in cash has been allotted up to the lowest amount of contribution.
- A declaration on account that every director has compensated in cash in the total amount of the shares due.
- A declaration on account that no any such amount likely to be repay to the applicants for shares which have already been recall for public subscription.
- A statuary declaration which is signed by the authority known as secretary on account that all the requirements / conditions have been fulfilled.
The registrar with the satisfaction being entirely fulfilled that:
- All the declarations have been verified and submitted.
- A Certificate which is known as “Certificate of Commencement of Business” will be issued, if all other necessities of the Companies Ordinance have been completed. On collection of said certificate any company is allowed / permitted to begin its business.
Advantages of a Public Limited Company
- The liability of shareholders is limited.
- The large capital can be raise by issuing debentures and shares due to their extension in number of shareholders.
- One of the advantage of public limited company is that it is separate legal entity, the business is always continue even is any of the member die.
- Shareholders have free hand to transfer and sell their share leads more liquidity.
Disadvantages of a Public Limited Company
- One of the disadvantages of public company is that during its formation a lot of legal requirements are needed which is too much time consuming and costly.
- Loss of control may happen in the business.
- Decisions are usually taking too much time leading disagreement between the members.
- In formation of company, many significant expenses are also incurred.
- As there is a great number of member involved in public company, therefore profits are shared among these is very minimum.
- Accounts which are required to be published should have been prepared up to date.
Privileges of a Public Limited Company
The main privileges of a public limited company are as follows.
- It can be formed by seven members and no maximum limit.
- The liability of the shareholders is limited to the value of the shares held by them.
- A public limited company can begin its business after receiving “Certificate for the Commencement of Business”.
- Statuary meeting is required as well as submit statuary report with the registrar.
- The number of director should not be less than 7.
- Each Share holder is entitled to transfer his shares of ownership without the consent of other members.
- The financial report i.e. balance sheet and profit and loss is required to send the copies account to the registrar.
- The management of the public limited company is entrusted to a board of directors elected by them.
- It can be listed on stock exchange of the country.