Many people have come across businesses with names ending in Ltd or PLC, indicating their status as either a private or public limited company. However, not everyone understands the key differences between the two structures.
What is a Public Limited Company (PLC)?
A Public Limited Company (PLC) is a type of business that is owned by shareholders and managed by directors. Unlike private companies, PLCs can offer their shares to the general public, and they are usually listed on stock exchanges such as the London Stock Exchange or the New York Stock Exchange. This means that shares can be freely bought and sold by investors.
Many PLCs start as private limited companies and later choose to be ‘floated’ on the stock exchange, allowing them to raise significant capital. Investors who buy shares in a PLC may receive dividends, usually once or twice a year, depending on the company’s profitability.
Examples of UK Public Limited Companies:
- Tesco Plc
- Barclays Plc
- Royal Mail Plc
- easyJet Plc
- AstraZeneca Plc
Advantages of a Public Limited Company:
- The ability to raise substantial funds by selling shares to the public.
- Easier exit strategy for founders, as shares can be transferred or sold easily.
- Greater brand recognition due to stock exchange listing, which enhances credibility and potential business opportunities.
- Access to additional capital by issuing more shares.
Disadvantages of a Public Limited Company:
- Requires a minimum share capital of £50,000, with at least £12,500 paid before trading.
- Must comply with stricter regulations, including obtaining a trading certificate from Companies House.
- Susceptible to hostile takeovers if a majority of shareholders agree to sell.
- More exposure to public scrutiny and fluctuations in share prices due to market sentiment.
- Leadership is accountable to shareholders, which can sometimes lead to conflicts regarding company vision.
- Risk of short-term decision-making due to pressure from shareholders seeking immediate returns.
What is a Private Limited Company (Ltd)?
A Private Limited Company (Ltd) is the most common form of company incorporation in the UK. Unlike PLCs, they do not trade shares publicly and are owned privately by a limited number of shareholders (typically up to 50). The company is a separate legal entity from its owners, meaning that profits, liabilities, and assets belong to the business itself.
Examples of UK Private Limited Companies:
- River Island
- John Lewis Partnership
- Virgin Atlantic
- B&M Retail
- Greenergy
Private companies offer limited liability to their shareholders, meaning that in the event of insolvency, the shareholders are only responsible for the amount they have invested in the company. Their personal assets remain protected.
Advantages of a Private Limited Company:
- Shareholders typically have close relationships, leading to greater alignment on business goals.
- Easier to secure private investments and loans compared to sole proprietorships.
- Limited liability protects investors from personal financial risk if the company fails.
- Straightforward registration process for setting up a new Ltd company.
Disadvantages of a Private Limited Company:
- Higher initial setup costs, with founders sometimes needing to personally guarantee loans.
- Employees may be less motivated since profits are only shared among shareholders rather than the wider workforce.
Key Differences Between PLCs and Ltd Companies
| Feature | Public Limited Company (PLC) | Private Limited Company (Ltd) |
|---|---|---|
| Share Trading | Shares can be sold to the public on the stock exchange | Shares are privately held and not available to the public |
| Minimum Directors | Requires at least two directors | Requires only one director |
| Annual Accounts Filing | Must file accounts within six months | Has nine months to file accounts |
| Capital Requirement | Minimum share capital of £50,000 | No minimum capital requirement |
| AGM Requirement | Must hold an Annual General Meeting (AGM) | Not required to hold an AGM |
Frequently Asked Questions (FAQs)
1. Can a private limited company become a public limited company?
Yes, many private limited companies choose to go public by listing their shares on a stock exchange to raise more capital. This process is known as an Initial Public Offering (IPO).
2. What are the legal requirements for setting up a PLC?
A PLC must have a minimum of two directors, a qualified company secretary, and a minimum share capital of £50,000, with at least £12,500 paid before starting operations.
3. Why do businesses choose to remain private rather than go public?
Some businesses prefer to remain private to maintain control over decision-making, avoid the costs and regulations associated with being a public company, and prevent exposure to stock market volatility.
4. Can a PLC buy back its own shares?
A public company cannot purchase its own shares out of capital, unlike private companies, which have more flexibility in this regard.
5. Which company structure is better for small businesses?
A Private Limited Company (Ltd) is usually the best option for small businesses because it has fewer regulatory requirements, offers limited liability, and allows owners to retain more control over decision-making.
By understanding these differences, entrepreneurs and investors can make more informed decisions about which company structure best suits their business goals.
