Formation of Public Limited Company

Public Limited Company

Before knowing the formation of the company, let’s have a look at a public limited company. According to the companies ordinance (1984) public limited company means a company. Actually which is held by its articles of association.

1. Each shareholder is entitled to transfer his shares of ownership without the consent of other members.
2. The minimum number of its members is 7 and no maximum limit.
3. It is allowed to invite the general public to buy the shares by the issuance of a prospectus.
4. A heavy amount of capital is required in the formation of a 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

The promotion phase is the first phase of company formation. It includes all the activities, which are essential for a company to start a business. It is the combination of ideas that 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 a clear physical structure after carrying out in a business. However any business at this level cannot begin. It requires legal status, which is only possible through registration. Also the said process called Incorporation.

Incorporation Stage

Incorporation is the second phase for the formation of a public company. In which a company is gone under the registration process. The supporter needs to arrange relevant documents. Although submit the same with the registrar for the amalgamation of a company. These essential documents are as follow:-

1. Not less than seven members of the company must sign the Memorandum of Association.
2. Also not less than seven members of the company must sign Articles of Associations.
3. Promoters need to have submitted the requisite prospectus. Nor a statement which is often called in lieu of prospectus with the registrar.
4. Complete detail of directors regarding willingness to act his role in business. Along with by each of them duly signed.
5. The location/address of the office of a registered company must be noticed.
6. The prescribed filing fee and payments of duty on share capital must be submitted. Along with original challan receipts.
7. A declaration regarding fulfillment of registration in accordance with the provision of Companies Ordinance. Also approved by at least one of the authorities called a secretary.
8. Declaration certificates of nominated directors.

The above all documents along with the requisite filing fee must be submitted with the registrar. Firstly the registrar will scrutinize entire documents on their receipt. Then satisfy himself with the requirements under the law, and if it shows satisfactory results. He will register the company in the Register of Companies Ordinance. As well as issue a certificate which may be called “Certificate of Incorporation”.

This Certificate is major evidence of the facts of the Companies Ordinance requirements. However business cannot start at this level.

Subscription Stage

In the case of Private Limited Company where business can be started on the collection of certificates of Incorporation. On the other side, a public limited company must undertake another essential requirement. Particularly to begin his business i.e. “Certificate of commencement of business”. This phase of company formation is connected with the given key steps:-

1. It is essential that an invitation has been made to the general public. To subscribe to the shares by issuing a prospectus.
2. A statement which may be called in lieu of prospectus with the registrar has been submitted. So in case of no prospectus has been issued.

Commencement Stage

This stage of a public limited company is consists of the following documents:-

1. A declaration on account that payment of the whole amount subject to shares held in cash. That has been allotted up to the lowest amount of contribution.
2. A declaration on account that every director has compensated in cash in the total amount of the shares due.
3. A declaration on account that no such amount is likely to be repaid to the applicants. Specifically for shares that have already been recalled for public subscription.
4. A statutory declaration 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. Although if all other necessities of the Companies Ordinance have been completed. On a collection of said certificates any company is allowed/permitted to begin its business.

Advantages of Formation of Company

1. The liability of shareholders is limited.
2. The large capital can be raised by issuing debentures and shares. Owing to their extension in the number of shareholders.
3. One of the advantages of a public limited company is that it is a separate legal entity. Although the business always continues even if any of the members die.
4. Shareholders have free hands to transfer and sell their share leads to more liquidity.

Disadvantages of Formation of Company

1. One of the disadvantages of a public company is that during its formation. Therefore a lot of legal requirements are needed which is too time consuming and costly.
2. Loss of control may happen in the business.
3. Decisions are usually taking too much time leading to disagreement between the members.
4. In the formation of the company, many significant expenses are also incurred.
5. As there is a great number of members involved in public companies. Therefore profits are shared among these is very minimum.
6. Accounts that 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 a “Certificate for the Commencement of Business”.
• A statutory meeting is required as well as to submit a statutory report with the registrar.
• Also the number of directors should not be less than 7.
• Each Shareholder is entitled to transfer his shares of ownership without the consent of other members.
• The financial report i.e. balance sheet and profit. As well as loss is required to send the copies to account to the registrar.
• The management of the public limited company is entrusted to a board of directors elected by them.
• Hence it can be listed on the stock exchange of the country.