Most companies start out as private limited companies. At some point, it may be possible to consider becoming a public limited company - but what are the main differences, advantages and disadvantages?
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What is a private company?
Most companies in the UK are private limited companies (LTDs). They are legally distinct entities with their own assets, profits and liabilities. The personal finances of any shareholders are protected by limited liability (ie their liabilities are limited to the value of their shares). Shares in private companies cannot be offered to the general public.
Private companies must be incorporated with Companies House (Companies House in Edinburgh for companies registered in Scotland, and Companies House in Wales for companies registered in England and Wales) and are required to adopt certain legal documents - including articles of association and a memorandum of association - which form the company’s constitution.
Limited companies must have at least one director (who must be a natural person, ie a human and not a company) and optionally a secretary. The directors will often be the sole or primary shareholders. They have various legal duties, one of which is to ensure that an annual return is submitted to Companies House every year.
For more information, read Private limited companies.
What is a public company?
Public limited companies (PLCs) are similar to private limited companies, in the sense that they are legally distinct entities with their own assets, profits and liabilities. However, shares in a public company can be freely sold and traded to the general public and their shares can be listed on a stock exchange. PLCs are the only type of company allowed to raise capital from this type of public investment.
PLCs must also be incorporated with Companies House (Companies House in Edinburgh for companies registered in Scotland, and Companies House in Wales for companies registered in England and Wales) and form a constitution (ie by adopting articles of association and memorandum of association). Additionally, they must have a minimum allotted share capital of £50,000 (with at least 25% being fully paid up) and this needs to be reflected in a Certificate for Commencement of Trading, obtained from Companies House.
Public limited companies must have at least two directors. Furthermore, a company secretary with professional qualifications is a requirement.
What are the key differences between private and public companies?
Some of the main differences between private limited companies and public limited companies include:
- public companies can offer their shares for sale to the general public
- two directors are required for public companies whereas only one is needed for a private company
- public companies cannot accept an undertaking to do work or perform services as consideration for allotment of shares
- public companies cannot purchase their own shares out of capital
- public companies must appoint a company secretary who is suitably qualified
- public companies have six months in which to file their annual accounts as opposed to private companies which have nine months
- public companies are required to hold an annual general meeting whereas this is generally not a requirement for private companies
How do you change a private company to a public company?
A private company can be re-registered as a public company, in line with Part 7 of the Companies Act 2006, by:
- passing a special resolution (at least 75% of shareholder votes in favour)
- delivering Form RR01 to Companies House
What are the pros and cons of going public?
The key benefit of becoming a PLC is to be able to raise capital through selling shares to the general public. Also, going public often generates publicity, introducing a company and their products to new consumers. However, there are more rules and requirements with which public companies must comply. So, this is generally only a suitable option for fairly mature companies, with a suitably advanced infrastructure, looking to expand.
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