696 (Companies Act) Why does Private Limited Company become Public Limited

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• published: 21 Jun 2014
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Case Companies Act - Why does private Limited companies form Public Limited ? Video Link - https://www.youtube.com/watch?v=uCAeMLL8pcI (Because of more money requirement ) Solution - By Amlan Dutta Dedicated to Chitlange sir....the note is written after countless hopurs of talks with the great man ! (Note a replicate of earlier note ---for people who have read the earlier note on share premium , advise to watch the YT tutorial ...i have to write teh note so that i can make the YT( Youtube ) tutorial interesting ) When i decide to set up a Public limited company , the first step is to go to the registrar of companis and submit my meorandum and articles and get that registered Capital - Share capital In the memorandum , i get the authorises capital approved say 1 lakh Rs (assume 10000 shares of 10 Rs each ) I have a existing capital of 1 lakh (10000 shares @ 10 Rs ) and reserves of 1 lakh Rs In the balance sheet , the assets side (application of funds will show (1)Fixed assets - Laptop - 50000 , electronic items - 50000 Rs and (2) bank balances - 50000 Rs and This total capital can be thought of as my capital for the business which can be broken into shares of face value 5 or 10 preferable Say i break them into 10000 Shares of 10 Rs each , now the company business represent share capital of 1 lac rs (10000 shares of 10 Rs ) which i hold This is called my (owner's)stake in the business The equity side will show the capital of 2 lakh rs in terms of (1) share capital = 1 lac Rs and (II)reserves and surplus (ii) share premium = 1 lac So, my networth is 2 lacs assuming Nil iability ...... Book value is 2 lacs / number of shares that i have = 200000/10000=20 Rs ROC - Say i go to the Registrar of companies and get Authorised 2 lakh rs share capita l...what it means is 20000 shares of 10 Rs face value of which on account of my capital , i am already subscribed to 10000 shares at 10 Rs face and 10 Rs premium (share premium on account of reserved ) So i can issue now issues only shares 10000 @ 20 Rs i.e premium of 10 Rs each ( face value 10 as authorised and premium of 10 Rs because of the capacity of my book profit ) Private Company - I DECIDE TO MAKE FRO PVT Limited Here , i issue the shares to my close relatives , family and friends and thus the management stays very much in the family This is doen when the promoter (me in this case ) doesn't wish to go outside the family for the family business whilst forming the company Therefore this is called a clisely held company because the shares are held and subscribed by the close family members and relatives fof the director However , private limited is feasible when the business doesn't have much bigger exapansion plans What if i didn't wanna raise 2 lakh authorised share capital What if i wanted to raise 20 lakhs shares capital which my family , relatives cannot afford PUBLIC LIMITED COMPANY - I DECIDE TO MAKE FRO PUBLIC LIMITED First i go to the ROC and get approved authorised share capital of 10 lakh rs Then , since increase my stake to 5 lakh Rs(50000 x 10 Rs ) , say the profit is there at 1 lakh ...assume nil liability so total networth = 6 lakh So Book value = 600000/ 50000 shares = 12 Rs For the remaing 5 lakh rs i issue 50000 shares at 12 Rs premimum (10 rs face and 2 rs premium ) When the public subscribe , now they get shares in return and therefore become owner's of the company to the extent of the subscribed capital A Public limited is formed when the capital to be raised is much more than that can be privately managed It is called a widely held company because here the shares /ownership is in the hands of the pubic (till the extent of the subscribed capital) unlike the private limited where it was in the hands of the private people Hope this makes the topic clear , Peace , Amlan Dutta