this article exclusively discusses the features, grounds for rejection and benefits of a public listed company.
Publicly listed companies, also known as publicly traded firms, have their shares listed on any of the stock markets that allow the trading of their shares to the general public, i.e., anybody can sell or buy the shares of these companies on the open market.
It is a firm that has been listed on a minimum of one public stock market and has offered securities to public investors for a stake in the company. The company goes public through an Initial Public Offering, which the Securities and Exchange Commission must approve from any country.
A specific number of the shares are made available to the public limited company, while the dominant shareholder retains control. Going public involves entering the secondary market. Trading between investors can impact the overall value of the company. Due to the high cost of financing, most privately owned companies choose to go public after meeting all regulatory requirements. Procter & Gamble, Google, Apple, Tesla, and other publicly traded corporations are a few examples of public listed companies.
Characteristics of a Public Listed Company
A company’s existence is unaffected by its stockholders’ retirement, death, or insolvency because it is an independent legal entity. These are the features listed below of the public listed company:
- The company has a separate legal existence from the individuals that comprise it
- Its formation, operation, and termination are all firmly regulated by rules, regulations, and laws
- A corporate member’s responsibility is limited to the market value of their shares. He is under no duty to contribute anything to the company’s creditors once he has paid the full face amount
- A company’s shareholders do not have the privilege of participating in the daily monitoring of the company’s business. This guarantees that ownership and administration remain distinct. The Board of Directors holds a firm’s decision-making authority, and all policy decisions are decided at the Board level using the majority rule. This makes sure that management is on the same page
- A business must have at least seven members, but there is no restriction on the maximum number
- The corporation raises funds by selling shares, and the people who buy them are known as members. The sum collected is known as the share capital
- A company’s shares are freely transferable without the permission of other stakeholders or successive notice to the company.
Benefits of a Public Listed Company
Raise capital
Going public through an Initial Public Offering (IPO) and subsequent investment phases allows companies to secure substantial funds. These funds are then used for regular business operations, potential growth initiatives, sales efforts, and capital expenditures. Going public also broadens a company’s shareholder base, adding legitimacy through stock market presence.
Boost in Employee Morale
The act of going public elevates a company’s profile and improves public perception, leading to increased morale and value among employees. Additionally, it may attract new talent to the organisation.
Debt Reduction
Publicly listed companies have the advantage of lowering their debt burden by selling shares. This strategy enables them to reduce interest payments, bolster working capital, and significantly improve debt-to-equity ratios.
Facilitating Mergers and Acquisitions
A higher valuation of a company’s shares in the stock market makes business mergers and acquisitions more feasible, requiring fewer shares to be exchanged for cash. Initial public offerings or subsequent share offerings can be employed to raise the necessary funds for such strategic moves. Successful mergers and acquisitions lead to increased efficiency, earnings, and revenues for the target company.
Increased Visibility
Going public enhances a business’s visibility and reputation, especially among institutions and external investors. This is achieved through adherence to regulatory standards and a commitment to transparency in business operations.
Enhanced Liquidity
Listing shares on the stock exchange promotes liquidity, allowing shareholders to realise the market value of their shares. This facilitates the trading of shares, enabling shareholders to share risks and reap rewards from any increase in the organisation’s value.
Transparency and Efficiency
The listing of shares in a Public Listed Company contributes to increased transparency and efficiency in business operations, fostering trust among stakeholders.
Drawbacks of a Public Listed Company
Companies that choose to go public confront not only huge prospects for growth but must also cope with the drawbacks or obstacles involved with the shift. Here are the obstacles that these sorts of companies could face:
More Accountability and Transparency
Stockholders want regular accounting reports to understand how their shares are performing. They must be completed within six months after the fiscal year’s conclusion. Annual general meetings need to be held to demonstrate your accountability to a larger number of persons than previously. Typically, public limited corporations are held accountable and audited more thoroughly.
Exposed to Takeovers
It’s beneficial to spread the risk but also makes your organization open to takeovers. This is especially important if a majority of shareholders approve a takeover attempt. It is considerably more difficult to control who is a stakeholder in your firm. Thus you may lose the overall direction of your corporation.
SEBI’s Factors for Rejecting the DRHP
- If no one knows who the ultimate promoters of the corporation applying for the IPO are, SEBI has the authority to reject the Draft Red Herring Prospectus for the IPO
- The company is raising cash for a function unclear to SEBI and not listed in the DRHP
- The issuer’s business strategy is overstated, complex, or misleading, and investors cannot assess its risks, making forecasting the associated risks with the company’s future difficult
- Before filing the draft offer paper, there was an unexpected rise in the business, and the responses to clarification questions for this unexpected increase in business were unsatisfactory
- A lawsuit is being filed against the corporation, and the verdict will determine the company’s future survival.
Frequently Asked Questions
Which are public listed companies?
ublicly listed corporations, also referred to as publicly traded entities, have their shares listed on stock markets where they are available for trading by the general public, enabling anyone to buy or sell these shares on the open market.
What are examples of public listed?
There are thousands of publicly listed companies around the world across various industries. Some well-known examples include Apple, Microsoft, Amazon, Alphabet (Google), Facebook (Meta Platforms), Tesla, Berkshire Hathaway, Johnson & Johnson, and JPMorgan Chase
Who owns public listed companies?
A publicly listed company is a corporation where ownership is distributed to shareholders in the general public through the free trading of stocks on markets or exchanges.
What is the difference between public and public listed companies?
A public limited company may be categorised as listed or unlisted. A listed public company is one whose shares are traded on a stock exchange, obliging it to adhere to the regulations outlined in the exchange's listing agreement.
How many shareholders can a public listed company have?
There must be at least seven distinct owners at all times. There is no maximum limit on the number of shareholders in Public Limited companies.
What is the purpose of a public listed company?
The purpose of a publicly listed company is to raise capital by selling shares to the public, allowing for greater liquidity and access to funds for expansion, investment, and operations.
Can a PVT company get listed?
A private company can become public through an initial public offering (IPO), but it must meet regulatory requirements and disclose financial information to be listed on stock exchanges
Conclusion
Converting the company into a publicly listed company may be a significant task, and it’s critical to understand all of the ramifications of enabling the general public to invest in your company. The best method to understand the ramifications of going public is to consult with a business attorney who is familiar with the rules governing securities and initial public offerings and can explain the benefits and drawbacks of your company going public. Get in touch with the experts at Vakilsearch to know more about a publicly listed company’s benefits.
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