A Public Limited Company (PLC) is a business entity registered under the Companies Act, 2013, that allows its shares to be publicly traded on stock exchanges. It is one of the most popular corporate structures for businesses aiming for large-scale operations, raising public capital, and expanding their market presence.
Public limited companies in India, such as Reliance Industries, Tata Steel, Infosys, and HDFC Bank, play a crucial role in the economy by contributing to employment, innovation, and wealth creation. These companies have greater access to financial resources, better credibility, and perpetual existence, making them attractive for investors and businesses with long-term growth ambitions.
However, becoming a public limited company also involves stringent legal compliance, regulatory oversight, and risks related to shareholder pressure and stock market volatility.
In this article, we will explore the advantages and disadvantages of a public limited company to help businesses and investors understand whether it is the right structure for their needs.
Quick Overview: Advantages & Disadvantages of a Public Limited Company
| Advantages | Disadvantages |
|---|---|
| Ability to Raise Large Capital from the Public | Stringent Legal Compliance & Regulations |
| Limited Liability for Shareholders | High Costs for Incorporation & Compliance |
| Shares are Freely Transferable & Tradable on Stock Exchanges | Risk of Hostile Takeovers |
| Better Business Credibility & Public Trust | Stock Market Volatility & Shareholder Pressure |
| Perpetual Succession (Company Continues Despite Ownership Changes) | Loss of Management Control Due to Public Shareholding |
| Increased Growth & Expansion Opportunities | Public Disclosure of Financial Statements & Business Strategies |
Advantages of a Public Limited Company
1. Ability to Raise Large Capital from the Public
One of the biggest advantages of a public limited company is its ability to raise funds by issuing shares to the public. It can attract:
- Retail investors (common public investors).
- Institutional investors (mutual funds, pension funds, hedge funds).
- Foreign institutional investors (FIIs).
For example, Zomato raised ₹9,375 crore through its Initial Public Offering (IPO) in 2021, helping the company expand and invest in new markets.
2. Limited Liability for Shareholders
In a public limited company, shareholders enjoy limited liability, meaning their personal assets are not at risk if the company incurs losses or debt. They are only liable up to the amount invested in shares.
For example, if an investor owns ₹1 lakh worth of shares in Tata Steel, they do not have to pay for company debts beyond this investment.
3. Shares are Freely Transferable & Tradable on Stock Exchanges
Shares of public limited companies are listed on stock exchanges (NSE, BSE) and can be bought and sold freely. This provides:
- Liquidity for investors, allowing them to exit investments anytime.
- Opportunities for new investors to enter the company.
For instance, investors can easily buy shares of Infosys on the NSE and sell them at any time based on market conditions.
4. Better Business Credibility & Public Trust
Being a publicly listed company enhances market credibility, transparency, and brand reputation. Investors, lenders, and customers view PLCs as more reliable and stable.
For example, HDFC Bank enjoys strong public trust due to its long history, regulatory compliance, and strong financial reporting.
5. Perpetual Succession (Company Continues Despite Ownership Changes)
A public limited company has perpetual existence, meaning its operations continue regardless of changes in ownership or management. Even if major shareholders sell their shares, the company remains operational.
For instance, Reliance Industries continues to function despite changes in its shareholder base.
6. Increased Growth & Expansion Opportunities
Public limited companies have higher financial capacity, enabling them to:
- Expand into international markets.
- Invest in research & development (R&D).
- Acquire competitors & enter new industries.
For example, Tata Motors acquired Jaguar Land Rover (JLR) in 2008, strengthening its global presence.
Disadvantages of a Public Limited Company
1. Stringent Legal Compliance & Regulations
Public limited companies must follow strict regulations under SEBI (Securities and Exchange Board of India), Companies Act, and Stock Exchange Listing Rules. These include:
- Filing quarterly & annual financial statements.
- Holding Annual General Meetings (AGMs).
- Disclosure of insider trading activities.
For instance, in 2021, SEBI fined Reliance Industries ₹25 crore for non-compliance with insider trading regulations.
2. High Costs for Incorporation & Compliance
Becoming a public limited company involves significant costs, including:
- Legal & registration fees for company incorporation.
- Ongoing compliance costs (audit, financial reporting, board meetings).
- Stock market listing fees for IPOs.
For example, an IPO can cost a company ₹50 crore to ₹200 crore in legal, underwriting, and compliance expenses.
3. Risk of Hostile Takeovers
Since shares are publicly traded, rival companies or investors can buy a majority stake and take control of the company. This is known as a hostile takeover.
For example, in 2017, L&T attempted a hostile takeover of Mindtree, leading to shareholder conflicts and management disruptions.
4. Stock Market Volatility & Shareholder Pressure
A public company’s share price is affected by:
- Stock market fluctuations.
- Investor sentiment.
- Economic downturns.
For example, during the COVID-19 crash in March 2020, share prices of major companies like Tata Motors and ICICI Bank dropped over 30% in a short period.
Additionally, shareholders demand continuous profit growth, which may force companies to focus on short-term gains over long-term strategy.
5. Loss of Management Control Due to Public Shareholding
Once a company goes public, founders & original owners lose full control as decisions are made collectively by:
- Shareholders.
- Board of Directors.
- Regulatory bodies.
For example, founders of Flipkart lost managerial control after selling a majority stake to Walmart in 2018.
6. Public Disclosure of Financial Statements & Business Strategies
Public limited companies must disclose financial reports, profit margins, business plans, and executive salaries, reducing business privacy.
For instance, Infosys must disclose its financial performance every quarter, making it difficult to hide internal challenges from competitors.
Who Should Consider a Public Limited Company?
Best Suited For:
✔ Large businesses looking to raise capital through IPOs.
✔ Companies aiming for global expansion & acquisitions.
✔ Businesses needing higher credibility & investor trust.
✔ Enterprises operating in high-growth industries (technology, banking, infrastructure).
Not Suitable For:
✘ Small businesses with low capital & fewer shareholders.
✘ Companies that do not want public scrutiny & regulatory compliance.
✘ Businesses preferring private control & confidentiality.
Conclusion: Is a Public Limited Company the Right Choice?
A public limited company is an ideal structure for businesses aiming for large-scale growth, access to public funds, and long-term sustainability. It offers high credibility, easy share trading, and investment opportunities, making it suitable for established enterprises and high-growth startups planning IPOs.
However, public companies also face high regulatory scrutiny, market risks, and loss of managerial control, which may not be ideal for all businesses. Entrepreneurs must weigh the advantages against the compliance burden before deciding to go public.
Anantha Nageswaran is the chief editor and writer at TheBusinessBlaze.com. He specialises in business, finance, insurance, loan investment topics. With a strong background in business-finance and a passion for demystifying complex concepts, Anantha brings a unique perspective to his writing.
