Most companies, regardless of whether they are a Public Limited Company (PLC) or Private Limited Company (LTD) start as a sole trader business entity first. They move on to limited companies to make use of their limited liability status, as well as the tax benefits offered through corporation tax. However, the choice between the PLC and LTD is made based on a few key differences.
But what are these key differences? In this article, we will outline the specific differences between PLC and Ltd companies in detail, so anyone considering making the change can make an informed decision.
The key differences between PLC vs LTD companies
The following is a bite-sized rundown of the differences between PLC and LTD:
| Private Limited Company (LTD) | Public Limited Company (PLC) | |
| Share trading | Private Limited Companies are privately held, and not traded on a stock exchange. | A “public limited company” is named as such because the shares are publicly traded on the stock exchange. |
| Minimum share capital | N/A | £50,000 |
| Number of shareholders | Maximum of 50 allowed | Unlimited numbers |
| Board of director count | Min of 1 director | Min of 2 directors |
| AGMs | No AGMs needed | AGMs needed for shareholder votes |
| Financial reporting | Minimum reporting other than tax return | Must submit public reports and audited financial results |
| Raising capital | Harder to raise equity funding | Capital can be raised through public markets, allowing PLCs to raise capital from a broader investor base |
The differences between PLC and LTD – breaking it down
Whilst the above table serves as a quick rundown, it’s not a full breakdown of the differences between private and public companies.
Trading shares
The main difference between the two legal structures is in how their shares are sold, as well as the larger effects on the companies:
- Private limited companies (LTD) – These types of companies are not listed on any public stock exchange, and all shares are privately owned and traded within closed groups. All company share trades are done with the approval of the existing shareholders, the most primary of whom are company founders and directors. The main reason for this is simple – it prevents hostile takeovers of a company, as whoever has the most shares typically has the most influence.
- Public limited companies (PLC) – Public limited company shares are listed and available for trading on stock exchanges, meaning anyone can buy them with no approval required.
The tradeoff here is that LTD company shareholders stay in control, whereas PLCs risk hostile takeover or misdirection. However, being closed off from the public stock exchange has its own share of pros and cons. When looking at the differences in how shares are traded between the two company structures, consider the following:
- Raising capital – The public limited company has access to public investment, larger capital pools and diverse fundraising methods. This puts them at a huge advantage over private limited companies, whose closed-off shares mean that investors have to come from the private sector, from profits or via loans.
- Share price and valuation – Shares are valued by market demand and supply for PLCs, meaning they can be influenced by company performance, industry trends, economic conditions and investor sentiment. This makes it incredibly volatile, as opposed to LTD companies, whose share value is determined through internal metrics and negotiation.
- Control and decision-making – LTD’s existing shareholders have massive control and decision-making power, meaning they can steer the company in whatever direction they please. They are bound by less regulatory requirements and scrutiny compared to PLCs, meaning their decisions are not slowed by making public disclosures. On the other hand, the major downside to PLCs is the possibility of losing control of the company entirely. Furthermore, the public can exert pressure by expecting consistent dividends and stock price appreciation. This has been known to cause PLCs to prioritise short-term profitability over long-term stability.
Minimum share capital and staff
The following will outline the minimum requirements for signing up as private and public companies via companies house:
- Minimum share capital – LTDs do not have any minimum share capital requirement when signing up at companies’ house, whereas PLCs need at least £50,000 to prove financial stability before listing. 25% of the nominal value (minimum value assigned to shares when issued) must be paid before trading.
- Minimum shareholders requirement – UK corporate laws require at least one shareholder to start a private company limited by shares, but a public limited company needs two. There is no maximum number of shareholders imposed on PLCs but private LTDs can have a maximum of 50.
- Company secretary – Only PLCs are legally required (under the Companies Act 2006) to appoint a company secretary and only one that is qualified.
- Company director – Limited companies both need a director, with LTD needing at least one director, and PLCs needing at least two directors.
Annual general meetings
Annual general meetings (AGMs) are formal gatherings of directors and shareholders, with discussions typically revolving around:
- Approval of financial statements.
- Annual reports.
- The election or re-election of directors.
- Appointments or reappointments of auditors.
- Shareholder voting on key company matters.
The requirements of AGMs make up one of the main differences between PLC and LTD companies:
- LTD – Unless annual general meetings are stated as being required in the company’s Articles of Association, then there’s nothing binding you legally to hold them.
- PLC – Holding annual general meetings are legally required under the Companies Act of 2006. The first AGM must be held within six months of the company’s financial year-end.
Reporting Needs
Reporting requirements differ in terms of intensity and scrutiny between PLCs and LTDs.
- Annual accounts filing* – LTD companies and PLCs are both required to submit full annual accounts, with the former requiring less depending on company size. The deadline for filing is 9 months after the financial year-end for LTD, and 6 months for PLC. The statements required for annual financial statements are as follows:
- Balance sheets.
- Profit and Loss Statements
- Cash Flow Statement
- Statement of changes in equity
- Notes to accounts
- Director’s report
- Strategic report
- Auditor’s report
- Public disclosure – PLC must publish fully audited financial statements with Companies House, which will be available to the public, whereas LTD companies are required to have fewer details.
- Half-yearly reports – PLC requires mandatory interim financial reports every 3 months of period-end.
- Director’s report – Required for both LTD and PLCs, though it is reduced for small companies.
Regulations & Protections for PLCs
A public limited company (PLC) is held to a lot more regulatory requirements than LTDs.
Public Limited Companies (PLCs)
- Listing Rules – Companies listed on the London Stock Exchange must follow strict rules on corporate governance, disclosure, and financial reporting.
- Market Abuse Regulation (MAR) – EU legislation to prevent market manipulation and insider trading. Requires timely disclosure of inside information, maintains insider lists, and takes measures to prevent or detect abusive behaviours. Applies to financial instruments traded on EU-regulated markets.
- UK Corporate Governance Code – Best practice code that sets standards for board leadership, effectiveness, accountability, remuneration and relations with shareholders. PLCs must report on how they comply with the code.
- Additional disclosure requirements – PLCs must publish audited annual reports and interim reports. Must also disclose major shareholdings, director dealings, related party transactions etc.
Can A LTD Company Become a PLC?
Yes, a private limited company can change its business structure to become a PLC providing certain criteria are met:
- Minimum share capital – To qualify for PLC status, the LTD must meet the minimum share capital requirement of having £50,000 in nominal value of shares.
- Documentation amendments – The company will need to alter its constitution by passing a special resolution to change its name and status, amending articles of association and other founding documents. These are official formal regulation steps that can’t be skipped.
- Administration – Administrative steps also include informing all shareholders and resolving any outstanding share transfer issues. Registrars and advisors guide the process.
Upon satisfying all requirements, the LTD can apply for re-registration as a PLC to the Registrar of Companies along with filing the necessary documentation. Once approved, the company can apply for a listing on a stock exchange. It must then comply with laws applicable to publicly traded companies regarding disclosures, governance practices and shareholder rights.
How To Alter A Business Constitution
If a private LTD company wants to transition to become a PLC, there is a set procedure to follow to complete the upgrade.
- Review Governing Documents – To begin the shift process, the LTD would need to evaluate if its articles of association, bylaws, shareholders’ agreement and other constitution documents permit such a restructuring or not. Any restrictions around commercial activities, legal obligations, or ownership share transfers must be examined before proceeding.
- Prepare and Approve Resolution – The intent has to be framed as a special resolution applying for re-registration as a PLC under UK Companies Act provisions. This must detail the name change while protecting shareholders’ rights. Approving 75% majority legally alters governing facets subject to regulatory consent.
- Consultation Rounds – The implications must be communicated both internally and externally – amongst employees, existing shareholders and prospective investors. Addressing concerns upfront ensures smooth facilitation at voting junctures retaining stakeholder confidence.
- Confirm to Formal Notice Requirements – Adequate advance intimation must be formally furnished to all shareholders and debenture holders per the statutory timelines before the presentation of the resolution. This grants them a reasonable opportunity for response.
Conclusion
There are huge advantages to both company structures. If you’re considering transitioning from a LTD to a PLC, you should seek advice from a business advisor or financial advisor to help you to objectively ensure that it’s the right time and decision for your business.
FAQ: What is a public limited company (PLC)?
A Public Limited Company (PLC) is a type of business structure that relies on raising investment capital by selling shares publicly. The LC denotes that it is a limited company and the P shows that it’s a public company. It needs a minimum share capital of £50,000 and is legally allowed to offer its shares for sale to the general public on a stock exchange, making it a publicly traded company.
A PLC can have an unlimited number of shareholders but has more complex regulations and reporting rules to meet. This includes the formal publication of audited financial reports, shareholder protections and holding AGMs.
FAQ: What is a limited company (LTD)?
LTD is used to signify a private limited company. Limited refers to the limited liability status of the company, which means that it’s a separate entity from its owners, ensuring that their personal assets and cash are safe should the business fail or be in debt.
Ownership of a limited company is managed through a maximum of 50 shareholders who hold shares privately. This type of company is relatively easy to set up and is popular with entrepreneurs setting up a new business venture.
