Company Limited by Shares

Reviewed by Sweta | Updated on Aug 27, 2020

Introduction

A company limited by shares refers to a company which issues shares to the public. Such companies are called limited companies in India and public limited company (PLC) in the commonwealth countries and Great Britain. They are called ‘Inc’ in the USA. The shares of a company limited by shares are generally listed on the stock exchange.

Understanding Company Limited by Shares

The ownership of a company limited by shares includes the members of the general public. Any person from the public can own a share in the company by buying through the stock exchange.

The liability of the shareholders of the company is limited to the nominal value of the shares. Shareholders are not required to pay up for losses in excess of the nominal value of the shares.

The business operations of a company limited by shares are regulated by the corporate affairs ministry and financial market regulators of their respective countries.

The companies should also submit periodical reports to the regulators and the corporate affairs department. The reports include annual financial statements, auditor’s report, and a statement from the Board of Directors.

A company limited by shares can be a public limited company or issue shares to the public to raise capital. A publicly listed company can easily access capital from portfolio companies, mutual funds, and institutional investors. Thus, the company can generate a lot of funds for business expansion and capacity building. The company can repay debts, restructure debts, carry out research and development, and buy-out smaller or rival corporates.

A company limited by shares should hold an annual general meeting of the shareholders of the company. The company should place the financials and related information before the shareholders for their approval. The company should pass resolutions in the meetings for the approval of the items on the agenda of the meeting.

Conclusion

A company limited by shares should maintain transparency in its dealings, make necessary disclosures of material events in all their filings before the stock exchange and in their communications with the shareholders.

Also, a listing is not mandatory on the exchanges. However, a company may choose to list to provide liquidity to its shareholders and greater access to capital markets.