Difference between Private and Public Limited Companies

Limited companies are a popular business structure in the UK, offering limited liability protection for their owners. This blog will explore the difference between private and public limited companies.

Private Limited Companies (LTD) and Public Limited Companies (PLC) are both types of limited companies, but they have different characteristics. While both offer limited liability, the main differences lie in their ownership structure, ability to raise capital, and legal and regulatory requirements.

It is important for entrepreneurs and business owners to understand these differences when deciding which type of company structure best suits their needs. By the end of this blog, you will have a clear understanding of the pros and cons of each type of limited company, allowing you to make an informed decision for your business.

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 limited companies, PLCs can offer their shares to the general public through a stock exchange. This means that anyone can buy and sell PLC shares, making them a more liquid investment option.

PLCs are required to have a minimum share capital of £50,000, with at least 25% of the shares being fully paid up. They must also have at least two directors and a company secretary. PLCs are subject to strict legal and regulatory requirements, including regular reporting and disclosure obligations.

What is a private limited company (Ltd)?

A private limited company (Ltd) is a type of business structure in the UK that offers limited liability protection for its owners. Unlike public limited companies (PLCs), Ltds are not allowed to offer shares to the general public. Instead, shares in an Ltd can only be held by a maximum of 50 private investors, such as the company's founders, family members, or close business associates.

Ltds are known for their simpler management structure and more flexible decision-making process compared to PLCs. They also have lower set-up and ongoing costs, making them an attractive option for small and medium-sized businesses. However, Ltds have a limited ability to raise capital, as they cannot sell shares on a public stock exchange.

Difference between private and public limited companies

The primary difference between PLCs and Ltds lies in their ability to offer shares to the public. Let's explore these and other key differences in more detail:

Ability to offer shares to the public

The most significant difference between PLCs and Ltds is their ability to offer shares to the public. A PLC can sell its shares on a public stock exchange, such as the London Stock Exchange (LSE), allowing anyone to purchase them. This means that a PLC can raise large amounts of capital by selling shares to a wide range of investors.

In contrast, an Ltd can only offer shares to a limited number of private investors, typically friends, family, or other businesses. Ltds are not allowed to sell their shares on a public stock exchange, and there are restrictions on the number of shareholders they can have (usually a maximum of 50).

Minimum number of directors required

Another key difference between PLCs and Ltds is the minimum number of directors required. A PLC must have at least two directors, while a Ltd can have just one director.

The directors of a PLC are responsible for managing the company's affairs and ensuring that it complies with all relevant laws and regulations. They are also accountable to the company's shareholders and must act in the best interests of the company as a whole.

In contrast, the director of an Ltd has similar responsibilities, but they are accountable to a smaller group of shareholders and may have more flexibility in decision-making.

Reporting requirements and deadlines

PLCs and Ltds also differ in their reporting requirements and deadlines. PLCs are subject to stricter reporting requirements due to their public status. They must publish annual financial statements, which are audited by an independent accountant, and submit these to Companies House within six months of the end of the financial year.

Ltds also have reporting requirements, but they are generally less stringent than those for PLCs. Ltds must submit annual accounts to Companies House within nine months of the end of the financial year, and these accounts do not need to be audited unless the company meets certain criteria (e.g., it has a turnover of more than £10.2 million).

Share buyback rules

The rules around share buybacks also differ between PLCs and Ltds. A PLC can only buy back its own shares if it has sufficient distributable reserves (i.e., profits available for distribution) and if the buyback is approved by a special resolution of the shareholders.

In contrast, an Ltd has more flexibility when it comes to share buybacks. An Ltd can buy back its own shares using any available funds, subject to certain restrictions (e.g., the buyback must not reduce the company's net assets below the total of its called-up share capital and undistributable reserves).

Annual General Meeting (AGM) requirements

PLCs and Ltds also have different requirements when it comes to holding Annual General Meetings (AGMs). A PLC must hold an AGM within six months of the end of each financial year, during which shareholders can vote on important matters such as the appointment of directors and the approval of the company's accounts.

Ltds are not required to hold AGMs, although they may choose to do so if they have a large number of shareholders or if the company's articles of association require it.

Minimum share capital requirements

Finally, PLCs and Ltds differ in their minimum share capital requirements. A PLC must have a minimum share capital of £50,000, of which at least 25% must be paid up before the company can commence business.

Ltd has no minimum share capital requirement, although it must have at least one issued share with a nominal value of at least £1.

PLCs and Ltds are limited companies, they differ in several key areas, including their ability to offer shares to the public, their minimum director requirements, their reporting obligations, their share buyback rules, their AGM requirements, and their minimum share capital requirements. Understanding these differences is crucial when deciding which type of company structure is best suited to your business needs.

Similarities between private and public limited companies

Despite the differences between PLCs and Ltds, there are several key similarities that both types of limited companies share. These similarities are important to understand, as they form the foundation of what it means to be a limited company in the UK.

Registration with Companies House

One of the most fundamental similarities between PLCs and Ltds is that both types of companies must be registered with Companies House, the UK's registrar of companies. This process involves submitting various documents, such as the company's articles of association and a memorandum of association, and paying the necessary fees.

Once registered, the company is granted legal status and can begin operating as a separate entity from its owners. This means that the company can enter into contracts, own property, and sue or be sued in its name.

Company name rules

Another similarity between PLCs and Ltds is that both types of companies must follow specific rules when it comes to their names. These rules are set out in the Companies Act 2006 and are designed to ensure that company names are not misleading or too similar to existing companies.

For example, a company's name must end with the words "public limited company" or "PLC" if it is a public limited company, and "limited" or "Ltd" if it is a private limited company. Additionally, certain words and expressions, such as "royal" or "British", are restricted and require approval from the Secretary of State before they can be used in a company name.

Limited Liability for Shareholders

Perhaps the most significant similarity between PLCs and Ltds is that both types of companies offer limited liability protection for their shareholders. This means that if the company goes into debt or faces legal action, the shareholders' liability is limited to the amount they have invested in the company.

In other words, if a PLC or Ltd goes bankrupt, the shareholders will not be personally responsible for the company's debts, unless they have provided personal guarantees. This protection is one of the main reasons why limited companies are so popular in the UK, as it encourages investment and reduces the personal risk for those involved in the business.

Factors to Consider When Choosing Between a PLC and Ltd

When deciding whether to form a PLC or an Ltd, there are several important factors to consider:

1. Capital requirements: If you need to raise a large amount of capital to fund your business, a PLC may be the better choice as it can sell shares to the public. However, if you only require a smaller amount of capital, an Ltd may be more suitable.

2. Ownership and control: With an Ltd, the owners have more control over the company as shares are not publicly traded. In contrast, PLCs have a more complex ownership structure with shareholders who can buy and sell shares freely.

3. Regulatory requirements: PLCs face stricter legal and regulatory requirements, such as having a minimum share capital, holding an Annual General Meeting (AGM), and producing detailed financial reports. Ltds have fewer obligations in these areas.

4. Prestige and public profile: Becoming a PLC can enhance a company's reputation and public profile, which may be beneficial for marketing and attracting talent. However, this increased visibility also comes with greater scrutiny.

5. Future plans: Consider your long-term goals for the business. If you anticipate needing to raise significant capital in the future or want to offer shares as employee incentives, a PLC may be the better option. If you prefer to maintain a more private and flexible structure, an Ltd is likely more suitable.

By understanding these factors carefully, you can decide which type of limited company best aligns with your business goals and long-term vision.