It is very common for companies to upgrade trading status from a private limited company to a public limited company. For this reason, there are special rules for a public limited company (PLC) to comply.
Payment for share capital
- The original subscribers to a public limited company’s memorandum are required to pay cash for their shares.
- At least 25% of the nominal value and the whole of any premium on shares in a public limited company must be paid on the allotment.
- A public limited company cannot accept an undertaking to do work or perform services as consideration for the allotment of shares.
- A public limited company can accept the transfer of assets to the company as full or part (subject to the 25% limit) payment for the allotment of shares. However, any undertaking to transfer those assets to the company must be performed within five years of the allotment. Furthermore, the company must take steps to satisfy itself that the value of the assets transferred to the company is accurate by obtaining an expert’s valuation and report.
Pre-emption rights on the allotment of shares
Generally, a public limited company must include the statutory pre-emption rights by a provision in its memorandum or articles. However, a PLC (like a private company) can prevent the pre-emption rights applying by giving the directors the authority to allot shares in accordance with the Companies Act 2006.
Maintenance of capital
Ordinarily, the directors of a public limited company are obliged to convene an extraordinary general meeting if the company ‘s net assets are 50% or less of its called-up share capital. Correspondingly, the meeting must be convened within 28 days of one of the directors becoming aware of this fact. And it must be held within 56 days. Obviously, the purpose of the meeting is for the problem to be considered. However, the Companies Act does not require the directors to take any definite steps to remedy the position.
Purchase own shares
A public limited company, like a private limited company, can buy back their own shares and issue redeemable shares. However, a public limited company cannot (unlike private companies) use its capital to purchase or redeem shares. However, a PLC can use its profits for these purposes. In addition, the tax rules which, if the various conditions are complied with, allow the shareholder whose shares have been bought by the company to treat the purchase as a disposal for capital gains tax purposes. Rather than the receipt of a distribution attracting income tax liability, only apply to the shares in unquoted companies. However, It should be remembered that a public limited company will not necessarily have a listing on the Stock Exchange.
Financial assistance for the acquisition of shares and loans to directors
The rules prohibiting companies from providing financial assistance for the purchase of their own shares are more stringent. Comparatively, in the case of public limited company than in the case of a private limited company. Similarly, the rules dealing with loans to directors are more stringent in the case of loans to directors of a public limited company as laid down by the Companies Act.
Distribution of profits
In addition to the general rules restricting the funds from which companies can make distributions, a public limited company is only permitted to make a distribution if their net assets are not, as a result of the distribution, reduced below the combined total of their called up share capital and ‘undistributed reserves.
Accounting requirements
The provisions which permit ‘small‘ and ‘medium-sized‘ companies to file less detailed accounts with the Registrar of Companies do not apply to a public limited company. They also cannot qualify as a dormant company which would lead them to be able to dispense with auditors. A public limited company must deliver audited company accounts to Companies House.
Age of directors
A PLC may not appoint a person aged 70 and above to be a director. Except where the appointment is approved in general meeting following special notice (giving the age of the director) of such resolution. When a director of a public limited company reaches the age of 70, he must retire unless the company in general meeting votes to retain him. Again, special notice must be given of any such resolution.
Written resolutions
The Companies Act which read the members of a private limited company can take decisions by written resolutions rather than passing resolutions at general meetings. This does not apply to a public limited company.
Appoint company secretary
A public limited company must appoint a company secretary whereas for a private limited company it is optional. The person who holds the position must have the minimum qualifications. Furthermore, the company secretary must assist in meeting the PLC legal requirements. This includes ensuring confirmation statement and company accounts are delivered to Companies House.
