A UK public limited company is a type of business structure that enables the raising of capital through the public trading of shares. By placing a public limited company on the stock market (e.g. the London Stock Exchange) investors can buy shares in the company. Companies often go public as a way of expanding, going into new markets, investing in new technology and developing new products. In many ways, public limited companies are similar to private limited companies. Both are distinct legal entities in their own right that are legally separate from their members. Furthermore, members have limited liability for any company debts. In this article we will discuss what it means to take a company public, the advantages and disadvantages of taking a company public in the UK and the main features of a public limited company.
What is a public limited company?
Under a public limited company business structure, ownership of the company is divided into shares that can be traded on the stock exchange. A company becomes public by making an initial public offering (IPO) and, by doing so, switches from being privately owned to being owned by members of the public who hold shares.
The term “limited” means that the shareholders are only ever liable for the debts of the public limited company to the extent of the nominal value of their shares. The nominal value of a share is the minimal price for which a share was initially sold (e.g. £1). The benefit of limited liability is that the personal assets of public limited company shareholders are entirely protected in the event of insolvency.
Some key facts to know about public companies are as follows:
- The abbreviation for public limited company in the UK is PLC.
- PLCs can sell shares to members of the public to raise capital.
- PLCs must have at least 2 directors.
- All companies on the London Stock Exchange (i.e. the FTSE-listed companies) are publicly owned PLCs.
- There are over 100,000 PLCs in the UK.
- Anyone can buy shares in a PLC.
- PLCs have strict financial data reporting and disclosure requirements .
- Some of the best known PLCs in the UK include:
- AstraZeneca Plc.
- Barclays Plc.
- easyJet Plc.
- GlaxoSmithKline Plc.
- J Sainsbury Plc.
- Marks & Spencer Group Plc.
- Rolls-Royce Holdings Plc.
- Royal Mail Plc.
- Tesco Plc.
- Vodafone Group Plc.
What are the legal requirements for establishing a PLC?
In order to establish a PLC in the UK certain legal requirements must be met. The company must have:
- Been registered with Companies House .
- A share capital of at least £50,000.
- A minimum of two directors.
- A company secretary with “chartered” status, which means that she or he must hold a qualification issued by the Chartered Governance Institute of the UK and Ireland.
If all these criteria are met then the company may issue an Initial Public Offering (IPO) to raise capital by selling shares to the public and become a PLC.
What is the difference between a PLC and a Limited (Ltd.) company?
PLCs and limited companies have many shared features but there are some key differences of which to be aware. PLCs are publicly owned and raise capital by selling shares to the public through the stock exchange. Private companies cannot sell shares to members of the public to raise funds for growth and tend to be owned by a small number of shareholders.
When setting up a PLC it must have at least two shareholders and two directors, whereas a private limited company requires only one shareholder and one director.
From an administrative perspective, PLCs must submit company accounts to HMRC within 6 months of the end of the financial year, whereas private companies have 9 months to do this. In addition, private limited companies do not need a chartered company secretary, whereas this is a legal requirement for the establishment and running of a PLC.
What are the key characteristics of PLCs?
Several key characteristics of public limited companies are as follows:
- Shareholder limited liability – Shareholders have limited liability, which means that their personal assets (e.g. money and home) are not at risk in the event that the PLC faces financial problems.
- Perpetual Succession – PLCs continue to exist regardless of whether owners or managers change or die. This provides important business stability and confidence that its existence is not linked to any one individual.
- Capital creation – PLCs can raise substantial capital by issuing shares to the public through stock exchanges. This money can then be used for large-scale investments and expansion. Indeed, this is one of the main reasons that companies go public.
- Corporate Governance – PLCs must meet strict corporate governance requirements, which are designed to ensure greater levels of public transparency, ethical conduct and accountability.
What are the advantages of becoming a PLC?
The PLC business structure offers many real benefits that simply do not apply to private limited companies. We have already alluded to the greatest benefit of becoming a PLC being that large amounts of capital can be raised by selling shares to the public. The capital thus raised can fuel large-scale research and development and expansion into new markets, products and services. The raising of such capital is seldom available through private investment.
Another important consideration is the enhanced prestige in having a public limited company. The high regard in which PLCs are held can help attract more customers, suppliers and business partners, which will allow further expansion and growth.
PLCs tend also to be better positioned for taking part in mergers and acquisitions, which facilitates growth and market dominance.
What are the disadvantages of a PLC?
As you might expect, PLCs also have some downsides of which company owners ought to be aware before proceeding with an initial public offering (IPO).
PLCs face far more stringent regulatory requirements in comparison with private companies, including stricter financial, disclosure and compliance requirements. This includes also the requirement for PLCs to show their accounts to their members at an annual general meeting (AGM). Public companies are required to disclose business strategies, financial data and other information that shareholders and potential shareholders can use to assess their position in the market. Unfortunately, however, competitors can also use this information to their advantage.
The record-keeping requirements for public companies are also more onerous for public companies. Whereas private limited companies must keep accounting records for 3 years, public limited companies must keep them for 6 years. Meeting these requirements can be very time-consuming and costly. The penalties for late filing are much higher for PLCs than for private companies.
It is also important to remember that taking a company public means relinquishing some control to shareholders. As a result, major decisions are handed to shareholders, who may have differing views and agendas. This can impair the agility of the company and its ability to make important decisions. Going public also means that the company is exposed to the vagaries of the market. Market fluctuations can dent investor confidence and the ability to raise new capital.
How are PLCs regulated?
Public Limited Companies are highly regulated, meaning that managing compliance and regulatory affairs can become a significant administrative burden. In particular, public limited companies are regulated in accordance with the Companies Act 2006, which sets out the requirements for company formation, financial reporting and corporate governance. PLCs must also adhere to the strict regulatory rules and requirements of the Financial Conduct Authority (FCA) and the London Stock Exchange (LSE). The Financial Conduct Authority (FCA) oversees and regulates the conduct of public limited companies on the stock exchange and ensures they continue to abide by the market conduct rules.
Final words
Setting up a PLC in the UK through an initial public offering (IPO) can offer significant benefits, including the potential to raise much capital and achieve growth that might not be achievable for a privately owned company. Having said that, however, the decision to become a PLC should be made only after careful consideration of the advantages, disadvantages and regulatory responsibilities of this type of business structure. Before going public, take the time needed to fully understand the intricacies of public limited companies in the UK, the legal implications and how this model will affect your business in the short, medium and long term.
Although companies with the tag of “PLC” may be attractive and hold greater prestige, going public is not always appropriate. If the need for capital is not considerable, or if there is a need to keep the plans and strategy of the company private, then a public listing may be unwarranted. If, on the other hand, your business is now ready for large-scale expansion and growth, you have protected your intellectual property and you are ready to reap the benefits of the time and money that you have invested so far, then an IPO to make your private limited company a PLC may be a good way forward.
