A public limited company (PLC) is an organisation that is owned by shareholders, and managed by directors. Members of the public can purchase stock, and most pay out dividends once or twice a year. A private limited company (Ltd) does not publically trade shares and is limited to a maximum of fifty shareholders. They are a private entity that owns all liabilities, profits and assets.
What is a public limited company?
A public limited company is a business that is managed by directors and owned by shareholders; shares in this type of company can be freely sold and traded amongst the public.
Unlike other structures such as partnerships and sole traders, a public limited company exists separate from its owners. This protects public limited companies from liabilities and debt. Shareholders cannot be held responsible for any business losses more than the amount they paid for their shares.
Here are some UK public limited company examples:
· Tesco Plc
· Barclays Plc
· Royal Mail Plc
· easyJet Plc
· AstraZeneca Plc
Public limited companies are the only type of company that can raise capital by selling shares to the public, these shares may also be listed on a stock exchange. When there is a surplus of income, company profits are distributed to shareholders in the form of dividends.
Pros and cons of public limited companies (PLC)
There are many pros and cons to public limited companies, here are six:
Pros:
- Anyone can invest their money into the company through shares, and the amount raised is typically much larger than in a private limited company.
- Founders will be able to leave the business with a comfortable exit strategy due to a higher transferability of shares. Visible and well-known PLCs increase the bid interest.
- Better brand recognition due to public shares/on the stock exchange. This increases sales and makes the business more visible to valuable potential business partners.
Cons:
- Must start with at least £50,000 of nominal share capital, with £12,500 minimum paid and committed to the business: initial costs significantly higher than a private limited company.
- Additional and stricter legal and regulatory requirements e.g., trading certificate from Company’s House before they can trade, follow the rules of the London Stock Exchange.
- More vulnerable to a hostile takeover if most shareholders agree to bid. A potential bidder can build up a shareholding in advance of launching a bid attempt.
An additional con to consider is short-termism. People wanting a return on investment in shares means directors may focus on short-term results to increase profits rather than the long term. Aside from this, although being transparent increases brand recognition, it leaves the company exposed to more scrutiny by analysts and media commentary.
What is a private limited company?
A private limited company is the most common form of UK company incorporation. The difference from a public limited company is that they operate as a distinct legal entity to its directors and shareholders. Essentially it has its profits, liabilities, and business assets all belonging to the company itself.
Some UK private limited company examples include:
· River island
· John Lewis Partnership
· Virgin Atlantic
· B&M Retail
· Greenergy
Private limited companies restrict the transferability of shares and prevent the public from buying them. The liability of each member or shareholder is limited, this means that if the company goes insolvent and the company is liquidated, the owners are only liable for the amount they invested in the company, they aren’t liable to sell their own assets or payments. In other words, the personal assets of shareholders are not at risk.
Pros and cons of private limited companies
It is good to know the advantages and disadvantages of a private limited company before going into business with them:
Pros:
- Owners can retain control as there are only a few shareholders, and often these shareholders are supportive friends/family. Profits are only shared between them and received as a dividend.
- More able to raise money through the issue of ordinary shares and by borrowing.
- Limited liability which investors are protected by in the event the company fails.
Cons:
- Must be registered with the registrar of companies.
- High set-up costs (legal and administrative). UK Private limited companies must use documents called Memorandum of Association and Articles of Association.
- Harder to motivate and control workers as profits are only shared with shareholders and many workers will not hold shares.
- How do private and public limited companies differ?
As a summary of the points made above, here are the main differences between private and public limited companies:
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Public companies can offer their shares for sale to the public, must appoint a company secretary who is suitably qualified, and cannot purchase their own shares out of capital.
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UK Private limited companies only need one director whereas public limited companies require two.
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Private limited companies have nine months to file their annual accounts whereas public limited companies only have six.
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Public companies are required to hold an annual general meeting; this is not a requirement for private companies.
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