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Part 2: Choosing the Right Company Structure for Your Business Under the Companies Act, 2013

The Companies Act 2013, which was enacted by the Indian Parliament, serves as the cornerstone of the country’s company law, replacing its predecessor, the Companies Act 1956. Receiving presidential consent on August 29, 2013, it was implemented gradually, with Section 1 becoming effective the following day, on August 30, 2013.

In this blog, we will specifically take a look at public limited companies and section companies. 

Read more: Part 1: Choosing the Right Company Structure for Your Business Under the Companies Act, 2013

Public Limited Company

In a public limited company, even the public will be able to hold shares in the company. Moreover, there is no limit as such for the number of shareholders. That being said, a minimum of seven members is needed in a public company. 

It combines corporate privileges with limited liability and can raise capital from the public through stock exchange listings. Compliance with government regulations is mandatory. The entity, governed by the Companies Act, 2013, allows members limited liability and the ability to raise funds by issuing shares. Despite stricter rules compared to private limited companies, it offers benefits like easy share transfers and ownership.

What are the advantages?

  • It is recognized as a distinct legal entity with perpetual existence, possessing PAN, bank accounts, contracts, and assets independent of shareholders.
  • There is access to various funding avenues, including individuals, financial institutions, and equity shares, preference shares, or debentures.
  • Private limited companies offer easy transferability of shares among shareholders or entities, enabling swift director changes for continuous business operation.
  • Shareholders enjoy limited liability, shielding their personal assets from unexpected company liabilities.
  • Possesses a substantial capital base, leading to significant growth prospects, particularly for a public limited company.
  • Governed by a Board of Directors elected by shareholders, overseeing the company’s operations.

Section 8 Company (NGO)

Section 8 of the Act permits a group of people or an individual to register a corporation for charitable purposes. These businesses were founded to advance social welfare, charity, science, art, education, sports, research, religion, commerce, and environmental preservation, among other goals. The business ought to use its earnings and other sources of funding to advance its initiatives. These companies want to forbid paying their members any dividends. 

What are the advantages?

  • Enhances credibility among donors, partners, and beneficiaries, ensuring transparency and compliance.
  • Enjoy tax exemptions under Sections 12A and 80G, easing financial burdens for more focus on charitable activities.
  • Opens doors to diverse fundraising opportunities from government, corporates, and philanthropic bodies due to transparent financial structures.
  • Provides members protection for personal assets against organizational financial liabilities.
  • Ensures perpetual succession and offers naming flexibility, allowing focus on mission-driven branding.
  • Access to government schemes and grants dedicated to Section 8 companies, offering substantial financial support.
  • Regulatory oversight ensures adherence to legal requirements, fostering transparency and trust.
  • Easy transferability of ownership or management ensures seamless operations despite changes in key personnel.
  • Emphasizes charitable activities over profit, directing resources to social welfare initiatives.
  • Draws committed individuals, fostering a motivated team dedicated to societal impact.
  • Builds a strong reputation for transparent operations and social commitment, boosting credibility.
  • Opens avenues for international collaborations, enabling access to global resources and expertise for addressing social issues.

In the last article of the series, we explored OPCs and private limited companies. Understanding these options is crucial for entrepreneurs seeking the most fitting framework for their business endeavors in India’s dynamic landscape of company law.

Snigdha Basu
Snigdha Basu
A multifaceted writer, Snigdha Basu is a freelancer and a columnist at Entrepreneurs Today. She also spearheads Chic Life Edition - her own Digital Magazine with sustainable fashion, beauty, and culture at its core. Reach out to Snigdha at [email protected] for inquiries.
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