Public limited companies account for 4% of limited businesses in the UK. As SMEs expand and mature, the decision to transition from a private to a public limited company is often made to gain access to extra capital, which comes from the ability to sell shares to the public via a stock exchange such as the London Stock Exchange.
If you run an established organisation and are thinking about going public, it’s vital to clue yourself up on the nuances of publicly listed businesses. Join us as we explore everything you need to know about public limited companies, including their characteristics, advantages and disadvantages, setting one up and your initial public offering (IPO), and ownership.
What is a public limited company?
A public limited company (PLC) is a business that is legally allowed to sell its shares to the public. Similar to a private limited company (LTD), the members of a PLC have limited liability – they are not responsible for the company’s debts unless they have given personal guarantees on any business loans. Each individual’s liability is limited to the value of the shares they hold.
The features of a public limited company
Let’s explore some more of the key characteristics of PLCs:
- PLCs can sell shares to the public via a stock exchange;
- This type of organisation collects share capital through the sale of shares to members (the shareholders of a company);
- The company must have issued share capital of at least £50,000 and sold 25% of the value of its shares prior to registration;
- Like LTDs, members of PLCs have limited liability for the company’s debts (they are only responsible for the value of their shares or any personal guarantees made against loans);
- PLCs are viewed as distinct legal entities that are separate from their members;
- They must have at least two directors (compared to just one for LTDs);
- PLCs need at least two shareholders to register;
- A PLC must have a company secretary with an ICSA qualification.
Public limited company examples
There are around 100,000 different PLCs currently operating in the UK. Some of the most well-known and profitable examples include:
- AstraZeneca Plc
- Barclays Plc
- Cineworld Group Plc
- easyJet Plc
- GlaxoSmithKline Plc
- J Sainsbury Plc
- Marks & Spencer Group Plc
- Rolls-Royce Holdings Plc
- Royal Mail Plc
- Tesco Plc
- Vodafone Group Plc
You’ll notice that all of these organisations have the designation ‘Plc’ after their trading names. These three letters signal that a company displays all of the characteristics we discussed above, including limited liability and the ability to sell shares to the public.
Who can buy shares in a public limited company?
Once shares in a PLC have been quoted on a stock exchange, anyone is able to buy them. This is one of the critical downsides of publicly listed firms as it can result in a loss of control over the company (we’ll look at this more closely below).
Advantages and disadvantages of public limited companies
Now that you’ve got the key elements of PLCs under your belt, it’s time to delve a little deeper into the pros and cons of going public rather than remaining as an LTD. There are plenty of advantages to registering as a publicly listed firm, including:
- Raising investment – the share capital brought in through the sale of shares provides a PLC with a source of income that can then be invested into the growth of the company. The additional funds could be used to launch new products, enter new markets, or increase spending on research and development.
- Reduced risk – Whilst other forms of investment may require you to give up large amounts of equity to individual investors; this is spread across a greater number of people with the sale of shares. A broader base of shareholders reduces the risk involved.
- Developing new networks and business links – those who invest in your company will naturally want it to succeed to increase the value of their shares and the dividends they receive each year. As a result, investors are incentivised to help you expand your business network and develop links with other firms that will support your growth.
- Easier access to loans and other forms of finance – banks view listed PLCs as a safer bet than LTDs from a credit perspective due to the demands of keeping up a listing on a stock exchange. With this in mind, publicly listed organisations usually find it easier to get loans than their private counterparts and can negotiate more favourable interest rates and repayment terms.
- Brand awareness and prestige – listing a company on a stock exchange generates attention from investors, increasing awareness of your brand. This often has the knock-on effect of making your brand appear more prestigious to customers, suppliers, and even employees. PLCs often see an uplift in sales and staff retention once they start selling shares.
Whilst all of these factors may make the transition to PLC status seem like an attractive proposition, it is not without its downsides. Compared to private limited companies, PLCs have the following disadvantages:
- Increased regulation and requirements – in addition to requiring two directors and a qualified company secretary, a number of other regulations apply to PLCs that aren’t an issue for private limited firms. We’ll explore these in greater detail in the dedicated section below, but they include points such as the requirement to have company accounts audited.
- Potential loss of control – within a PLC, shareholders have a degree of control over the company’s actions as the directors are ultimately accountable to them. If more than 50% of the shares are sold, there is even the possibility that members could take over and oust the director of the company. Publicly listed firms have much less control over who buys shares, and shareholders could influence the company with a very different strategic view to the directors.
- Greater need for transparency – because members of the public invest in PLCs, these organisations must publish full details of their financial situation and recent performance on a yearly basis. Once in the public domain, this information is accessible to all; any downturn in performance could result in negative press and a loss of confidence in the firm.
- Stock market vulnerability – although being on the stock market allows an organisation to access share capital, it also leaves it exposed to the effects of any changes in share value. Negative attention in the media can reduce the value of a company’s shares, and the perceived success of the company very much ties into its share price.
- Vulnerable to takeovers – if another business wants to take over, they can buy up shares in the organisation and exercise their shareholder power to force through the decision from within. This leaves PLCs very vulnerable to hostile takeover situations.
How to set up a public limited company
If becoming a PLC still seems like the correct route for your business, then you’ll want to know more about setting one up. This section outlines the registration process and your initial public offering (IPO).
The registration process
Before you can begin the process of setting up a PLC, the organisation must fulfil specific criteria:
- It must have at least two shareholders and directors;
- 25% of its shares must have been issued to the public, amounting to a minimum share capital of at least £50,000 or the equivalent in euros;
- It must employ an ICSA-qualified company secretary.
To register the business as a PLC, you’ll need to gather together the following information:
- The proposed name of the company (this must end in ‘Plc’ and be unique, so use the Companies House availability checker tool);
- The company’s registered office address;
- The personal details of the directors, along with information regarding any directorships and shareholdings they own;
- Details of the initial shareholders, including names, addresses, and the number of shares issued.
The next step is to prepare your memorandum and articles of association. If you register online, the memorandum generates automatically – those who register by post should use the Government’s memorandum template. For the articles of association, you can either use the model articles provided or create your own based on these.
Once you’ve got this ready, you can register your company online. Alternatively, to submit your application by post, you’ll need form IN01.
Before you can begin operating as a PLC, you’ll need to obtain a trading certificate demonstrating that you’ve satisfied the necessary criteria. You can apply for this using the SH50 form.
Your initial public offering (IPO)
An initial public offering (IPO) is the method used to go public and make shares available once you register as a PLC. Before this can happen, your business will be audited to ensure that it is in a strong enough financial position – you’ll then prepare a registration statement to file with the Financial Conduct Authority (FCA).
Your application will then be passed on to the stock exchange of your choice (for example, the London Stock Exchange). If approved, you’ll need to contact an investment bank to help you decide how many shares to offer on the exchange and the price at which to set them.
Accounting requirements and responsibilities
There are a number of requirements and responsibilities that come with setting up a PLC, most of which centre around its accounting. All PLCs must:
- Have their accounts audited (unless exempt) and file these with Companies House once a year – the first accounts must be submitted with 18 months of incorporation compared to 21 months for private companies;
- Send an annual return to Companies House, updating them on changes to directors and shareholders;
- Inform HMRC of taxable profits by submitting a Company Tax Return within six months of the end of the financial year, then pay any Corporation Tax that’s owed each year;
- Publish the full details of current profits, financial position, and tax responsibilities to members of the public via annual statutory accounts;
- Invite all shareholders to an annual general meeting (AGM), at which the accounts and dividends are discussed;
- Ensure that company directors complete a Self-Assessment Tax Return on a yearly basis.
It’s worth noting that the Government is much harsher with PLCs than private companies when dealing with failure to fulfil these responsibilities. For example, the fines for late filing of accounts are usually four to five times higher for publicly listed firms.
Who owns a public limited company?
While PLCs are run and managed by the board of directors, the shareholders own them. Ownership of the organisation is split between all of the members who own shares. Each member’s degree of control over the company’s operations is dictated by the proportion of the shares they hold.
This guide has explained all you need to know about public limited companies, from their basic features through to the process of setting one up.
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