Difference between Public limited company and private limited company

Difference between public limited company (PLC) and private limited company in of respect of compliance requirements under the Companies Act are discussed here.

Usually, businesses are set up as a private limited company. Some would upgrade its company status to a public limited company with the intend to have access of capital from the public through trading its shares at the stock exchange.

Generally, the compliance requirement for a PLC is stricter. PLC is a company limited by shares with its memorandum states that the company is to be a public limited company. To which the provisions of the Companies Act as to the registration or re-registration of the company as a public limited company have been complied with.

Any company which is not a public limited company is classified a private limited company.

Company Name

The name of a public limited company must end with the words Public Limited Company or PLC. For Welsh companies, Cwmni Cyfyngedig Cyhoeddus or CCC. The company will be a Welsh company if its registered office is to be in Wales.

Company’s memorandum of Association

The memorandum which your company register with the Companies’ Registry must be in the form specified by the Companies Act 2006.

The main difference between the forms of memorandum specified for PLC and for private limited company is that the form for PLC requires its memorandum to include an additional clause stating that the company is to be a public limited company.

The nominal value of the share capital

The nominal value of the public limited company’s allotted share capital must not be less than the authorised minimum. Currently, it is £50,000.

When a public limited company allots shares, it is under an obligation to ensure that at least 25% of the nominal value of the shares is paid on allotment. This includes the whole amount of any premium on the shares.

For a private company, it can issue shares without requiring any immediate payment for them. In other words, the share capital can be unpaid.

Number of members and officers

Public limited company, unlike private limited company, must have at least two members. Formerly, they needed seven members. They must also have at least two directors whereas private limited company need have only one. Additionally, the company secretary of a public limited company must be the person with relevant knowledge and qualifications.

The issue of shares or debentures

The principal advantage which a PLC had over a private limited company is that public limited company could offer shares or debentures to the public for cash or other consideration. Additionally, to allot those shares or debentures with a view to them being offered for sale to the public.

Offers of shares to the public are governed by Part VI of the Financial Services and Markets Act 2000 and the Public Offers of Securities Regulations 1995 (SI 1995 No. 1537). These require the issue of a prospectus in any case where shares are to be offered to the public within the terms of the legislation. In other words, your PLC’s shares are publicly traded on the Stock Exchange.

Company registration

The procedure to follow and documents required to register a public limited company are the same as for a private limited company. Once the Companies House is satisfied that the documents comply with the company registration requirements, a certificate of incorporation will be issued.

Trading certificate

However, before ta PLC can do business or borrow money, you must obtain a further certificate called trading certificate. Which Companies House will issue only if they are satisfied that the share capital is adequate. See Section 761 of Companies Act 2006 for further information.

For this purpose, your company director or company secretary must submit a declaration to Companies house. The declaration will state that the nominal value of your company’s allotted share capital is at least equal to the authorized minimum of £50,000. Furthermore, your company must also supply the following details.

(a) The amount paid up on the allotted share capital which must exceed the minimum of £50,000.

(c) Any amount or benefit paid to the company’s promoters,

(b) The amount of the preliminary expenses and details of who will meet them.

Last but not least, if you commenced trading without the trading certificate your PLC could face severe consequences. For instance, If the company entered into a transaction before obtaining the trading certificate, the directors will be jointly and severally liable to indemnify the other parties to the transaction for any loss. Furthermore, both the company and its officers will be liable to a fine.

above all, the court can also wind up PLC if fails to get trading certificate within one year of incorporation. the law governed this event is S-122 Insolvency Act 1986.

Auditor

Public limited company must submit audited company accounts with Companies House. For this reason, PLC must hire an qualified auditor to audit the company accounts. The role of an auditor to examine your company accounts and express their opinion if your accounts give a true and fair view.

On the other hand, private company classified as small company can opt to prepare audit exemption accounts. In other words, Companies House wold accept non audited company accounts if they are small company.

Summary

In summary, knowing the difference between public limited company and private limited company legal administration would help you to decide which type of incorporation is suitable for your business.

Concurrently, you access the cost and time involve in compliance administration. If you have no intention to raise capital from the public then a private company may suit your business. On the other hand, if your intention is to access public funding through shares trading then a PLC is the way forward.

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