Public Companies

Characteristics of a public company

  • A public company should consist of at least seven shareholders. The maximum number depends upon the number of shares registered.
  • A public company is a legal entity, separate from its owners and or  its shareholders
  • A public company has an unlimited continuity. It continues to exists even if the shareholders differ
  • The shareholders of a public company have a limited liability. If the company should become liquidated, the shareholders will not lose more than they originally invested, resulting in them not losing their personal possessions
  • A public company is required to pay income tax as it is a legal entity
  • The name of a public company ends in Ltd or in the word Limited
  •  A public company’s shares are freely transferable, resulting in any member of the public may become a part-owner in the public company
  • A public company may begin operating only once it has received a certificate to go ahead and start business from the registrar of companies. A public company must adhere to all the rules and regulations in the companies Act (Act 63 of 1971).
  • The companies assets and liabilities are the sole responsibility of the company
  • An auditor is needed to audit the books of the company
  • If the company should make any changes to its constitution, it can only be done by particular as well as special resolution of all its stakeholders

Advantages of a public company

  • The liability of the shareholders is limited. If the company should be liquidated, shareholders lose only the amount of money that they have invested in the business. They do not lose their personal possessions.
  • The public company is a legal and has unlimited continuity, therefore it will continue to exist even if the present shareholders leave and new shareholder join
  • A public company can raise huge amounts of capital. The shares are divided into small units which are appealing to many small investors
  • The shares of a public company are freely transferable. Investors are delighted to become part owners of the company because they are aware that there is a ready market to sell their shares when and if they have the desire to do so.
  • The public company may be listed on the stock exchange, with the awareness that the shares may be converted into cash with no difficulty
  • The administration of the company acts separately from the shareholders, allowing the most appropriate persons to be elected as directors of the company

Disadvantages of a public company

  • Forming a public company is a lengthy, complex and costly procedure
  • A public company is subjected to many rules and regulations. Financial statements must be made available to the public at the annual general meetings that must be held
  • Competitors may use the published insights contained in the official documents of the public company to their own advantage

The administrative costs involved in the operation of a public company are very high. Registration and transfer of shares, printing and sharing of reports, and the meetings held are very expensive