Private vs Public Limited Companies: How Do They Differ?

Company vs Owners: Liabilities and Debts

 

The concept of a limited company as a separate legal entity means that it can enter into contracts, own property, and incur debts in its own right. This legal separation provides a level of protection for the owners, as the company’s debts and liabilities are typically not directly transferred to them.

However, it’s important to note that directors and shareholders may still be held responsible in specific circumstances, such as instances of fraudulent activity or wrongful trading. Overall, the limited company structure protects owners from certain business risks and obligations.


Types of Limited Companies in the UK

In the United Kingdom, several types of limited companies have distinct characteristics and purposes. Understanding the distinctions among these types of limited companies is crucial for entrepreneurs and business owners when choosing the most suitable structure for their specific needs and objectives. These are the four main types:

Private Companies Limited by Shares (Ltd):

The most common type of company, Private Companies Limited by Shares, are owned by shareholders whose liability is limited to the amount unpaid on their shares. The company’s profits are typically distributed among the shareholders as dividends.

Ownership is determined by shareholding, and these shares can be transferred privately. The number of shareholders is limited, and the company is not allowed to offer its shares to the public.

Private Companies Limited by Guarantee (Ltd by Guarantee):

Unlike companies limited by shares, Private Companies Limited by Guarantee do not have share capital. Instead, members act as guarantors, agreeing to contribute a nominal amount (often a £1 guarantee) in the event of the company’s liquidation.

Common among non-profit organisations, charities, and clubs, these companies are often formed for purposes other than profit. Profits and assets are usually reinvested in the company’s activities.

Private Unlimited Companies:

Private Unlimited Companies do not have a limit on their liability, meaning that the shareholders are personally responsible for the company’s debts. These companies are relatively rare and are often used for specific reasons, such as flexibility in financial structures.

Shareholders are jointly and severally liable for the company’s debts, and their liability is not limited. This structure is less common due to the increased personal risk for shareholders.

Public Limited Companies (PLC):

Public limited companies are intended for larger businesses that want to offer shares to the public. They are listed on a stock exchange, and the general public can buy and sell their shares.

PLCs must adhere to stricter regulatory requirements than private companies. They have a minimum share capital requirement, must have at least two directors and a qualified company secretary, and are subject to more stringent reporting and disclosure obligations.

 

Share Capital Requirements 

 

Share capital refers to the total value of shares issued by a company in exchange for capital contributions from its shareholders.

Private and Public Limited Companies must have a share capital, which represents ownership in the company. For Public Limited Companies (PLCs), there is a minimum share capital requirement, and this amount must be at least £50,000. This minimum threshold is in place to provide a level of financial stability and assurance to the public investors who may buy shares on the stock exchange.

In contrast, Private Limited Companies are not subject to a minimum share capital requirement. The absence of a minimum for private companies allows for greater flexibility in structuring these businesses, making them more accessible for small to medium-sized enterprises. The focus on flexibility acknowledges that private companies may have varying capital needs and enables entrepreneurs to tailor their capital structures to the specific requirements of their business without the rigidity of a predetermined minimum.

 

Selling Shares

 

The process of selling shares differs significantly between Private and Public Limited Companies.

Public Limited Companies (PLCs) have the ability to list their shares on the stock exchange, providing a platform for the public to buy and sell these shares openly. This listing on the stock exchange offers liquidity to shareholders, as they can easily trade their shares with other investors. The decision for PLCs to go public is often driven by the need for substantial capital injection to fuel expansion or fund major projects.

In contrast, private companies are not listed on the stock exchange, and their shares can only be sold or transferred privately. This limitation on the sale of shares in private companies is designed to maintain a level of control over ownership and decision-making within the company. It allows private companies to operate with a more stable shareholder base, fostering long-term relationships and strategic decision-making that may not be possible in the more dynamic and publicly traded environment. Additionally, private companies often prefer this approach to maintain confidentiality and control over their operations.

 

Director and Secretary Requirements for Limited Companies

 

Limited companies are subject to specific requirements regarding their directors and secretaries.

Both Public Limited Companies (PLCs) and Private Limited Companies must have at least one director. A Private Limited Company can have a single member who serves as a director and shareholder, while a PLC must have at least two directors. The director and secretary, if appointed, must meet certain eligibility criteria. Directors must be at least 16 years old, not disqualified from serving as directors, and possess sound mental capacity.

In contrast, secretaries, though optional, must be capable of fulfilling their statutory duties. They are responsible for maintaining company records, ensuring compliance with regulations, and handling administrative tasks.

Both directors and secretaries must provide their consent to act in these capacities, and their personal details, including names and addresses, are publicly accessible through Companies House. Adhering to these requirements ensures transparency, accountability, and good governance within the framework of UK company law.

 

Incorporation Process for Limited Companies

 

The incorporation process for limited companies involves several key steps.

The first step is selecting a suitable company name and ensuring its availability, as certain names may be restricted or already in use. Once the name is secured, the company must be registered with Companies House, the UK government’s official register of companies.

The registration process includes submitting necessary documents, such as the memorandum and articles of association, details of directors and shareholders, and the company’s registered office address.

After successful registration, the company is assigned a unique number, and its information becomes publicly accessible. Simultaneously, the company must notify HM Revenue and Customs (HMRC) of its existence for tax purposes, particularly for Corporation Tax. This involves providing details about the nature of the business and its expected profits.

Timely completion of these steps is crucial to ensure legal compliance and establish the company’s official recognition, administratively and for UK tax obligations.

 

Trading Permissions 

 

Regarding LTD vs PLC, there is a difference in the ability to commence trading after incorporation.

Private Limited Companies can typically engage in business activities immediately upon successful registration with Companies House. This immediate trading capability is attributed to the assumption that private companies usually have a smaller scope of operations and a more limited shareholder base, allowing for quicker decision-making processes.

On the other hand, PLCs, designed for larger enterprises with shares traded publicly on the stock exchange, require an additional step before initiating trading. PLCs must obtain a trading certificate, a formal document issued by Companies House. This certificate confirms that the company has met the minimum share capital requirements, assuring potential investors and the public.

The requirement for a trading certificate is a regulatory measure designed to ensure that public companies adhere to the necessary financial thresholds and safeguards, fostering investor confidence and market integrity in publicly traded securities’ larger and more dynamic environment.

 

Naming Conventions for Limited Companies

 

Regulations govern the naming conventions for limited companies to ensure transparency and provide information about the company’s structure.

Public Limited Companies (PLCs) must include the abbreviation ‘PLC’ at the end of their company name. This distinguishes them as publicly traded entities with shares listed on the stock exchange. The inclusion of ‘PLC’ signifies their public status and informs stakeholders and the public about the nature of the company’s ownership and financial structure.

Private Limited Companies typically include the word ‘limited’ or its abbreviation ‘LTD’ at the end of their name. This denotes that the liability of the company’s members is limited to the amount they have invested, indicating their private, non-publicly traded status. These naming conventions contribute to transparency and facilitate informed decision-making for individuals and businesses engaging with or investing in these companies in the UK.

 

Annual Account Submission Deadlines

 

Limited companies must submit their annual accounts to Companies House within specific deadlines. The submission requirements vary between Public Limited Companies (PLCs) and Private Limited Companies.

For Private Limited Companies, the deadline for submitting annual accounts is usually nine months after the end of the financial year. This allows ample time for companies to prepare and finalise their financial statements.

In contrast, PLCs face a more stringent deadline, with only six months allotted to submit their annual accounts. This shorter timeframe for PLCs indicates the heightened scrutiny and transparency expected from publicly traded entities.

Both types of companies must also file an annual return to Companies House, providing up-to-date information about the company’s directors, shareholders, and registered office address.

 

Annual General Meeting (AGM) Requirements

 

Annual general meetings (AGMs) are events where a company’s shareholders gather to discuss various aspects of the business, including financial performance, director appointments, and other important matters.

However, the requirements for holding AGMs differ between Public Limited Companies (PLCs) and Private Limited Companies.

PLCs are mandated to hold an AGM, as per the Companies Act 2006, which requires them to convene such meetings annually. This is in line with the greater public accountability and transparency expected from companies with publicly traded shares.

In contrast, Private Limited Companies are not bound by the same AGM requirements. The flexibility afforded to private companies acknowledges their often smaller and more closely-held nature, where shareholders are typically involved in day-to-day operations and decisions. While private companies may choose to hold AGMs voluntarily, they are not obliged to do so under UK law. This regulatory distinction reflects the varying needs and structures of different types of companies, emphasizing a balance between accountability and flexibility.

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