Malcolm ZoppiWed Oct 25 2023

Public Limited Company (PLC) vs Private Limited Company (LTD): The Difference Between Private and Public

Choosing the right type of company structure is a crucial decision for any business owner in the UK. Two of the most popular options are the public limited company (plc) and private limited company (ltd). While both offer their advantages and disadvantages, it’s vital to understand the key differences between them before making an informed decision.

public limited company vs private limited company

Choosing the right type of company structure is a crucial decision for any business owner in the UK. Two of the most popular options are the public limited company (plc) and private limited company (ltd). While both offer their advantages and disadvantages, it’s vital to understand the key differences between them before making an informed decision.

A plc is a type of company that can sell its shares to the public. In contrast, an ltd cannot sell its shares publicly. Ltds are therefore typically smaller, family-run businesses, while plcs tend to be larger and more complex organisations. Another essential distinction is that an ltd must have at least one director, while a plc must have two.

One key advantage of an ltd is that it’s a separate legal entity from its owners, which means that the shareholders’ personal liability is limited. On the other hand, the liability for shareholders in a plc is limited to the amount they have invested in the company. Additionally, plcs are subject to more stringent regulations, such as the requirement to hold annual general meetings and disclose information to the public.

Key Takeaways

  • Choosing the right type of company structure is vital for any business owner in the UK.
  • A public limited company can sell its shares to the public, while a private limited company cannot.
  • A private limited company is a separate legal entity from its owners, which means that shareholders’ personal liability is limited.
  • A public limited company is subject to stricter regulations, such as the requirement to hold annual general meetings and disclose information to the public.
  • An ltd must have at least one director, while a plc must have two.

Characteristics and Key Differences Between Private and Public Companies

Public limited companies (plcs) and private limited companies (ltds) are the two most common types of companies in the UK. While both are incorporated entities that can conduct business and own assets, they differ in several key ways.

A private limited company is owned by its shareholders and is limited by shares. This means that the shareholders’ liability is limited to the amount of money they have invested in the company. In contrast, public limited companies are limited by shares or guarantee, and shares can be offered to the general public. This means that public companies have more access to capital but are subject to stricter regulations and disclosure requirements.

Another key difference between private and public limited companies is that public companies are listed on a stock exchange and their shares can be bought and sold by members of the public. Private companies, on the other hand, cannot issue their shares to the public and are required to have a minimum of one shareholder and director. They are also required to appoint a company secretary by law.

Public limited companies must hold an annual general meeting where shareholders can vote on important decisions, whereas private companies can choose whether to hold AGMs. Public limited companies are subject to the Companies Act, which sets out additional requirements for governance, reporting, and shareholder rights. Private limited companies are also subject to the Companies Act, but their reporting requirements are less stringent.

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To summarise, the main differences between public and private limited companies are:

  • Public limited companies can offer their shares to the general public, whereas private companies cannot
  • Public limited companies are subject to stricter regulations and disclosure requirements
  • Public limited companies are listed on a stock exchange, and their shares can be bought and sold by members of the public
  • Public limited companies must hold an annual general meeting, whereas private companies can choose whether to do so
  • Public limited companies are subject to more stringent governance and reporting requirements under the Companies Act

Understanding these distinctions is important when choosing a company structure in the UK, as each type of company has its own advantages and disadvantages.

Advantages and Disadvantages

As with any business decision, there are pros and cons to both private limited companies and public limited companies. One of the main advantages of going public is the ability to raise capital through the sale of shares to the public. This can help a company to expand and take on larger projects that may have been out of reach before.

However, one of the main disadvantages of becoming a public limited company is the loss of control. Shareholders have a say in how the company is run, and the board of directors must make decisions that are in the best interest of all shareholders. This can sometimes conflict with the original vision of the company’s founders.

Another consideration when it comes to shares is the difference between private limited companies limited by shares and limited by guarantee. In the former, shareholders have a stake in the company and can receive dividends, but their liability is limited to the amount of share capital they have invested. In the latter, members are not shareholders and do not receive dividends. Instead, they provide a guarantee to cover any debts or liabilities of the company.

Private companies must also consider the requirement to offer their shares to the general public if they want to become a public limited company. This can be a time-consuming and expensive process, and it also means that the company will be subject to greater scrutiny and must disclose information to the public.

Becoming a plc also means that the company must hold annual general meetings and provide regular updates to shareholders. These requirements can be burdensome and costly for smaller companies.

Finally, it is important to note that public companies are limited by shares, meaning that the company is owned by its shareholders. In contrast, private limited companies are often owned by a small group of people, including the founders and investors.

In summary, both private limited companies and public limited companies have their advantages and disadvantages. Business owners must carefully consider their options and weigh the pros and cons before making a decision.

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Conclusion

In conclusion, it is important to understand the main differences between private limited companies and public limited companies. Public companies are required by law to disclose information and hold annual general meetings, whereas private companies are not. Additionally, a public limited company cannot issue shares unless they are offered to the general public, whereas private companies can offer shares privately.

It is also important to note that public companies cannot be limited by guarantee, only limited by shares. Private companies, on the other hand, may choose to be limited by guarantee, which means that their members’ liability is limited to the amount they guarantee to contribute to the company’s assets if it is wound up.

When deciding on a company structure in the UK, it is crucial to consider the advantages and disadvantages of both private and public limited companies. Public limited companies have the potential to raise more capital and attract more shareholders, but they also face greater scrutiny and restrictions. Private limited companies offer greater control and limited liability, but are limited in their ability to raise capital.

Overall, understanding these distinctions can assist in making an informed decision when choosing a company structure that aligns with your business objectives.

FAQ

What is the difference between a public limited company (plc) and a private limited company (ltd)?

A public limited company and a private limited company have different characteristics and obligations. A plc can offer its shares to the public and is required to disclose information and hold annual general meetings, whereas a private limited company’s shares are not available for purchase by the general public and has fewer disclosure requirements.

What are the key differences in the characteristics of public limited companies and private limited companies?

Public limited companies are listed on a stock exchange and have more stringent regulatory requirements, including the appointment of a company secretary and the ownership of shares by the public. Private limited companies, on the other hand, do not have to comply with these requirements and have more flexibility in terms of ownership and governance.

What are the advantages and disadvantages of going public as a public limited company?

Going public as a plc allows a company to raise capital by selling shares to the public and attract shareholders. However, there are drawbacks, such as the loss of control and limited liability. Additionally, a plc must comply with more regulatory obligations and disclose more information than a private limited company.

What is the main difference between private limited companies and public limited companies?

The main difference lies in the availability of shares to the public. A private limited company cannot offer shares to the general public, while a public limited company is able to do so. This difference impacts the regulatory requirements and obligations that each type of company must fulfill.

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Disclaimer: This document has been prepared for informational purposes only and should not be construed as legal or financial advice. You should always seek independent professional advice and not rely on the content of this document as every individual circumstance is unique. Additionally, this document is not intended to prejudge the legal, financial or tax position of any person.

Disclaimer: This document has been prepared for informational purposes only and should not be construed as legal or financial advice. You should always seek independent professional advice and not rely on the content of this document as every individual circumstance is unique. Additionally, this document is not intended to prejudge the legal, financial or tax position of any person.

Comprehensive provider

Get the specialist support you need

Whether you require specialised knowledge for your business or personal affairs, Gaffney Zoppi can support you.