Understanding the exact differences between a UK limited company and a public limited company (PLC) is not only imperative for business owners, directors, and potential investors, but also for the general public. In this comprehensive guide, we will dissect these two common types of businesses, categorizing them on various parameters such as shareholders, shares, liability, capital, tax, and financial register.
A limited company and a public limited company (PLC) are both entities recognized under UK law. They are separate legal entities, distinct from their owners or shareholders, and they both offer shareholders limited liability protection.
A limited company is a type of business structure that is 'limited by shares' or 'limited by guarantee'. It could be private or public. However, in the context of this article, the term 'limited company' will refer to a private limited company.
A private limited company is a business entity owned by a small group of individuals. These individuals are typically directors or family members. The company's shares cannot be freely traded or sold to the public and remain with the designated shareholders.
The key characteristic of a limited company is that the financial liability of the shareholders is limited to the capital they have invested in the company. This means that personal assets of the shareholders are not at risk if the company faces financial difficulties.
A public limited company (PLC), on the other hand, is a company that is allowed to offer its shares to the public. This means that anyone can buy shares in a PLC, either directly or through a stock exchange.
PLCs have a minimum share capital requirement of £50,000. Like limited companies, PLCs also offer limited liability to their shareholders. However, because their shares are publicly traded, PLCs are subject to more stringent regulations and disclosure requirements.
There are differences in the process of setting up a limited company and a PLC.
To set up a limited company, you will need at least one director and one shareholder. There's no minimum capital requirement. You must register your company with the Companies House, decide on a suitable company name, prepare the appropriate documents (Memorandum of Association and Articles of Association), and decide on the company's shares and share capital.
To form a PLC, you will need at least two directors, a secretary, and at least two shareholders. As mentioned earlier, there's a minimum share capital requirement of £50,000, with at least 25% paid up before registration. Like a limited company, you must register with the Companies House, decide on a suitable company name, prepare the appropriate documents, and disclose your intended share capital.
The capital and shares of a limited company and a PLC are structured differently.
In a limited company, the share capital is divided into shares of a fixed amount. These shares are not publicly traded and their transferability can be restricted by the company's Articles of Association. The shareholders of a limited company are often involved in the running of the business and are commonly known as 'members'.
In contrast, a PLC has its shares publicly traded on a stock exchange. This means that the shares can be bought and sold by members of the public. The minimum nominal value of issued share capital in a PLC must be £50,000, with at least 25% paid up.
The financial reporting and taxation obligations of a limited company and a PLC vary significantly.
A limited company is subject to Corporation Tax on all forms of income and certain capital gains. Companies must file annual accounts, an annual return, and a Corporation Tax Return with the HM Revenue and Customs (HMRC). The company's accounts must include a balance sheet, a profit and loss account, and notes about the accounts.
A PLC is also subject to Corporation Tax. However, because its shares are publicly traded, it has additional reporting obligations. PLCs must prepare and publish interim and annual financial reports, disclose price-sensitive information to the market, and hold an Annual General Meeting (AGM) where shareholders can vote on company matters. PLCs must also comply with the UK's Listing Rules and Disclosure and Transparency Rules.
In conclusion, while both limited companies and PLCs offer limited liability and are separate legal entities, they differ in terms of formation, capital structure, share trading, and regulatory requirements.
Understanding the liability and directorship of both a limited company and a public limited company (PLC) is essential for business owners, potential investors, and the general public.
In a limited company, the shareholders' liability is limited to the capital they have invested in the company. This means that if the company incurs debts or faces financial difficulties, the shareholders are not personally liable to pay these debts. Their risk is limited to the amount they have invested in the company.
Furthermore, a limited company requires at least one director. The director(s) have the power and responsibility to manage the daily operations of the company, make strategic decisions, and ensure the company complies with its statutory obligations.
Like limited companies, the shareholders of a PLC also enjoy limited liability. Their personal assets are protected if the company becomes insolvent or bankrupt.
However, a PLC requires at least two directors and a secretary. The directors of a PLC have similar responsibilities to those in a limited company. They must manage the company's operations, make strategic decisions, and ensure statutory compliance. The secretary's role in a PLC is to assist the directors and ensure the company complies with legal and regulatory requirements, including the UK's Listing Rules and Disclosure and Transparency Rules.
The levels of transparency and accountability in a limited company and a PLC differ substantially due to the nature of their operations and regulatory requirements.
Limited companies, being privately owned, have lesser reporting requirements compared to PLCs. They are required to file annual accounts, an annual return, and a Corporation Tax Return. However, there is no obligation to disclose detailed financial information to the public except for what is reported to the Companies House. This allows them some privacy in their operations and financial status.
On the other hand, PLCs, due to their public nature, are subject to strict regulations and transparency requirements. They are obligated to prepare and publish interim and annual financial reports and disclose price-sensitive information to the market in a timely manner. This ensures accountability to their shareholders and the public. Additionally, PLCs must hold an Annual General Meeting (AGM) where shareholders vote on company matters, further increasing the level of transparency and accountability.
In summary, both limited companies and public limited companies (PLCs) offer limited liability protection to their shareholders and are recognized as separate legal entities under UK law. However, they differ in several aspects, including formation and registration process, capital and share structure, reporting and taxation obligations, liability, directorship, and levels of transparency and accountability.
Understanding these differences is crucial for business owners, potential investors, and the general public. It helps in making informed decisions about the type of company to register, invest in, or engage with. It's equally important for business owners and directors to understand their responsibilities and obligations in running either a limited company or a PLC.
The choice between a limited company and a PLC depends on the specific needs and objectives of the business. If the intention is to keep the business private, a limited company could be the ideal choice. However, for businesses looking to raise capital from the public, a PLC would be the most suitable option. It's essential to seek professional advice before deciding on the type of company to register.