Around 95% of companies in the UK are private limited companies. The public limited company (or plc) is more rare and tightly regulated, but often seen as more prestigious.
Like a private company limited by shares, a plc is owned by its shareholders (or single shareholder) and run by its directors, each benefiting from limited liability. While many of the features are exactly the same as the private equivalent, in this article we look at what makes a public limited company unique and the specific requirements it must meet. Elsewhere, we look at the advantages and disadvantages of a plc compared to a private limited company.
A public limited company is the only type of business in the UK which can, if it chooses, offer its shares to the public to raise funds for commercial use. However, many public companies do not offer their shares in this way and are effectively privately owned, sometimes by another plc. In these cases, it may be the extra prestige apparently conferred by plc status or other reasons that made public limited company status desirable.
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Mostly, however, the driving reason behind the choice to be a public limited company is the ability to raise funds from the public and for shares to be freely traded. To trade in this way, the shares will typically be admitted to a regulated market and listed, for example on the London Stock Exchange (LSE) or Alternative Investment Market (AIM). To be admitted, each regulated market will have its own specific requirements that must first be met.
Most people associate the public limited company model with large, well-known businesses like BT Group plc, J Sainsbury plc or Prudential plc.
But there are just as many smaller plcs which you won’t have heard of, like Ears plc (who according to their website “sell, hire, service, repair and install Two-way radio and Tracking systems”) or Distgen Hinto LGC PLC (who generate electricity from a wind turbine). There are even dormant public limited companies, like Charles Church Village Heritage plc and Avocet Fuel Systems plc.
Neither are all large companies set up as a public limited company. Iceland Food Ltd (the frozen food chain), J.C. Bamford Excavators Limited (better known by the trading name ‘JCB’) and Wilko Retail Ltd. (behind the Wilkinsons high street brand) are all private limited companies rather than plcs.
Many public limited companies are not formed as such but instead converted from existing private limited companies via a special resolution, often when they grow to the point where public investment is necessary or desirable to further drive the business forward. Distgen Hinto LGC PLC, mentioned above, was converted to a public limited company in June 2015.
It’s also possible to convert a public limited company to a private limited company, where public status is no longer wanted.
Specific conditions
In addition to the standard requirements for all companies, a public limited company is requred to meet a number of specific conditions on incorporation (and generally beyond).
The name of a public limited company must end with either the words ‘public limited company’ or ‘plc’. Public limited companies registered in Wales can choose one of these or the Welsh equivalents, ‘cwmni cyfyngedig cyhoeddus’ or ‘ccc’. Only a few public limited companies formed under specific legislation, typically nationalised bodies, are exempt from using one of these at the end of their name.
In its memorandum of association, there must be a statement that the company is to be a public company.
At least two directors
A public limited company must be formed with at least two directors, at least one of whom must be an individual rather than a corporate director. In a private limited company, by contrast, only a single director is normally required.
As in other types of company, a director of a public limited company must be at least 16 years of age and not be disqualified from acting as a director. There’s no maximum limit on the number of directors of a public limited company.
Share capital
Even though it’s being registered as a public limited company, initial shares (and, indeed, later share issues) won’t necessarily be offered to be public. A significant number of unlisted plcs remain privately owned.
Public limited companies must be formed with a minimum amount of share capital. In line with the Companies Act 2006, it must allot shares with a combined nominal value of at least £50,000 (or the prescribed equivalent in Euros). Each allotted share must have at least a quarter of its nominal value paid up, along with the whole of any share premium.
Example 1
The founders of ABC plc choose to allot the minimum nominal value of shares. Although they decide to allot 50,000 shares of £1.00 to meet this requirement, they could instead have allotted 500 shares of £100, 1,000,000 share of £0.05 or any other combination. They choose to issue with shares without any share premium.
Each of the £1.00 shares must be at least 25% paid up on issue, so at least £0.25 must be paid on every share by the shareholders to whom they are allotted. If it wants, the company could insist that more (but not less) than this is paid on issue.
Example 2
XYZ plc is formed with 100,000 shares of £1.00 each. Again, at least 25% of the nominal value of each share – in this case, £0.25 – must be paid on issue.
In this case, the company chooses to issue the shares at a premium of £0.50, meaning that a total of £1.50 will ultimately be payable for each share. The whole of the premium must be payable when the shares are issued, so at least £0.75 (£0.25 nominal plus £0.50 premium) must be paid on each.
Again, the company could choose to go further and demand that more than this amount is paid. In a lot of cases, the company would only issue the shares if both the nominal value and share premium are fully paid.
Where the shares are issued partly paid, the balance of the nominal value may later by called by the company directors or, if the company becomes insolvent, by the liquidators.
Usually, because a public company is expected to maintain a solid capital base, shares must be issued for cash. Where allotment for non-cash consideration is permitted, that consideration must be subject to independent valuation before the shares are allotted.
A private company is not restricted in these ways. Unless there are restrictions in the company’s articles of association and providing the correct procedures are followed, a private company can issue shares without requiring that any immediate payment be made for them. They are also much freer to issue shares for non-cash consideration.
Company secretary
Because of the more detailed legal and corporate governance environment in which a public limited company operates, every PLC must appoint a suitably qualified company secretary. The company secretary of a plc (or each joint secretary) must be a person who the directors consider has the necessary ability and knowledge to perform the role and must meet at least one of the following 5 conditions:
- Have held the office of secretary or assistant or deputy company secretary on 22 December 1980;
- For at least three of the five years before their appointment, have held the office of secretary of a non-private company;
- Be a barrister, advocate or solicitor called or admitted in any part of the United Kingdom, or
- By virtue of his or her previous experience or membership of another body, appear to the directors to be capable of discharging the functions of company secretary; or
- Be a member of one or more of the following bodies:
- The Institute of Chartered Accountants in England and Wales (ICAEW),
- The Institute of Chartered Accountants of Scotland (ICAS),
- The Institute of Chartered Accountants in Ireland (ICAI),
- The Institute of Chartered Secretaries and Administrators (ICSA),
- The Association of Chartered Certified Accountants (ACCA),
- The Chartered Institute of Management Accountants (CIMA), or
- The Chartered Institute of Public Finance and Accountancy (CIPA).
If one of the directors meets the necessary conditions, they could also hold the role of company secretary. However, it’s typical instead to appoint someone to serve exclusively as company secretary. That’s partly because the workload for the secretary of a public limited company can be intensive, but also to avoid any potential conflicts of interest that might otherwise arise.
In comparison to a plc, there’s no longer a requirement for a private company to appoint a company secretary, unless its articles of association require it. Where a private company does choose to appoint a company secretary, there’s no requirement for the appointee to meet any specific conditions.
Trading certificate
After a public limited company has been formed and shares have been paid for to at least the minimum level and issued, the company must then complete an SH50 form to obtain a ‘Certificate of Trading’. The trading certificate must be received before any trading can commence or the company’s borrowing powers can be exercised.
Form SH50, also known as an ‘Application for a trading certificate for a public company’, is a declaration by the company that shares of at least £50,000 nominal value have been issued and at least a quarter of their value (£12,500) has been paid up. While a company can issue share capital in any currency, to apply for a trading certificate the shares must be denominated in either Sterling or Euros.
The SH50 form must be completed on paper and posted to Companies House, who will issue the certificate of trading provided they’re satisfied with the details contained on the SH50 form.
It’s an offence for a public limited company to trade without a certificate of trading. On conviction, the directors will be liable to a fine. In some circumstances, they may also become personally liable for losses sustained by a company which transacts with the plc.
In contrast, a private limited company can start trading immediately upon having been formed. If an existing private limited company is re-registered as a plc, form SH50 does not need to be completed and no trading certificate is required.
There are a number of further restrictions on how a public limited company must be managed:
Restrictions on Accounts
A public limited company faces several restrictions in preparing and presenting its accounts:
- Its accounts must be filed within 6 months of the financial year end, whereas a private company has 9 months to do so.
- While small or medium-sized companies may be exempt from having its accounts audited, normally a public limited company must obtain an audit.
- Additionally, smaller private companies can often choose to file abbreviated accounts, but this option is not open to public limited companies.
Annual General Meetings (AGMs) must be held
Public limited companies must arrange regular Annual General Meetings (AGMs), through which members can hold directors accountable for their decisions. Accounts must also be laid before shareholders and the appointment of auditors confirmed at an AGM. In private limited companies, by contrast, it’s possible to dispense with the holding of general meetings and instead to make various decisions regarding changes to the company via written resolutions.
Share capital restrictions
As well as the requirement to issue shares with a nominal value of at least £50,000 and for a quarter of this nominal value and the whole of any premium to be paid up, various other rules also apply to how a public limited company must manage its share capital:
- Pre-emption rights can only be excluded for a specified period, often the time between successive annual general meetings, rather than indefinitely.
- The opportunity to pay dividends is more restricted for public companies, which have to ensure their net assets will not fall below the level of called-up share capital and undistributable reserves as a result of a dividend.
- While a public limited company can purchase its own shares or redeem shares out of distributable profits, unlike a private company it cannot do so out of assets representing the company’s capital and non-distributable reserves.
- Public companies may not reduce the level of their share capital via a solvency statement, but will instead need to apply to the High Court to do so. For example, they might do so in order to write off accumulated balance sheet losses.
- Public limited companies cannot give financial assistance for the acquisition of their shares.
- A public limited company is required to convene a general meeting following a serious loss of capital.
No option to strike off
A public limited company isn’t able to apply for voluntary strike off. If the directors wish to pursue this option, the company must first be re-registered as a private limited company.
For more details, check out our article describing the advantages and disadvantages of a public limited company, where this type of business is compared to a private company limited by shares.
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