What are public limited companies?
Corporate entities that are registered under the Indian Companies Act that are recognized by law as separate entities from their owners and companies can enter into agreements under their own name. These companies have their own separate set of rules, obligations, regulations, and legal rights from their owners.
The owners of a public limited company are known as shareholders or stakeholders of the company. The ownership of the company is split into multiple units known as equity shares held by multiple individuals or corporates. The minimum shareholders is 7 which means there should be at least 7 different owners at any point in time with no maximum limit for the number of shareholders in Public Limited companies.
Definition
Governed by the Companies Act 2013, defines a company that is not a “private company”, “has a minimum amount of capital as prescribed” and “has a minimum of 7 shareholders”. Companies Act regulated the working of a public limited company. The public limited company offers shares to the public with limited liability either through IPO or via the Secondary(Stock) market.
Characteristics of Public Limited Companies-
Characteristics that distinguish public limited companies from other forms of business ownership. Let’s get to know these distinguishing features.
Limited Liability – It means that the personal assets of owners of a public limited company are not at risk in case the company defaults or cannot be held liable for any of the debts incurred by the company.
Transferability of shares – With respect to public limited companies shareholders can easily sell and buy shares on a stock exchange, providing liquidity and flexibility to investors.
Better Access to government schemes – Access to government schemes, incentives and subsidies are provided to public limited companies aimed at promoting economic growth and development.
Greater access to capital – Public limited companies can easily raise capital by issuing shares to the public to achieve their goals
Professional Management – Managed by professionals who has expertise in various area of business.
How do you go about investing in public limited company?
You can invest in a public company through the primary market or the secondary market. We discussed these markets back in the article on the different types of financial markets.
Investing through primary market –
The primary market is where public companies list their securities for the first time either through IPO or an FPO.
- IPO- Process through which a company offers its stocks for sale to the public for the first time, when it’s newly listed on the stock exchange.
- FPO – Process by which a company that’s already listed on an exchange issues fresh securities to raise additional capital.
Investing through secondary market –
In the secondary market, issued securities are traded. Existing shareholders sell them to traders and investors who wishes to buy those stocks. A number of financial assets like debentures, bonds, options, commercial papers and treasury bills can also be traded in the secondary market. Here, transactions happen between two different investors and not between an investor and a company, as in the case of a primary market.
Wrapping up
Once you’ve invested in a public company, how do you earn from your investment? To put it simply, there are many ways in which you can earn from investing in a business.
