Are you familiar with the term “public limited company” or PLC? This business structure is a popular choice for companies looking to raise capital through a public offering of shares. A PLC is a type of business entity that allows members of the public to buy and sell shares in the company on a stock exchange.
This means that the company’s ownership is spread among many shareholders, providing access to a broader pool of capital.
In this guide, we’ll explore everything you need to know about PLCs, including their benefits, requirements, and the process of going public or “floating.” So, let’s dive in and discover the world of public limited companies!
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Table of contents
- What Are Public Limited Companies
- How To Set Up a Public Limited Company
- Step 1: Choose a name
- Step 2: Registered office address
- Step 3: Appoint directors and company secretary
- Step 4: Create the memorandum and articles of association
- Step 5: Issue shares
- Step 6: Register your company
- Step 7: Apply for a trading certificate
- Step 8: Arrange for a listing on a stock exchange (optional)
- Step 9: File annual accounts and other documents
- How Do Public Limited Companies Differ from Private Limited Companies
- Advantages Of Public Limited Companies
- Disadvantages Of Public Limited Companies
- Characteristics Of Public Limited Companies
- Conclusion
What Are Public Limited Companies
Public limited companies, also known as PLCs, are a type of company that is publicly available on a stock exchange. These companies are usually large, well-established businesses that have grown beyond the scope of a private limited company. The shares are open to the general public in a public limited company, and anyone can buy and sell them.
One of the main benefits of a public limited company is the ability to raise capital. Since the shares are publicly available, the company can issue more shares to raise money from investors. Also, this makes it easier for a public limited company to fund growth and expansion plans and invest in new projects and technologies.
Public limited companies are also subject to more stringent regulations and reporting requirements than private limited companies.
They must file regular financial reports with the regulatory authorities and disclose certain information to shareholders, such as executive compensation and major company decisions. This transparency helps build trust and confidence among investors, ultimately benefiting the company in the long run.
However, being a public limited company also comes with certain disadvantages. The company may become subject to intense scrutiny from analysts and investors, which can put pressure on management to achieve short-term financial targets rather than focusing on long-term growth.
The company may also face increased competition from other businesses in the same industry as investors compare performance and make investment decisions based on profitability and growth potential.
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How To Set Up a Public Limited Company
Setting up a public limited company (PLC) can be a complex process, but here is a general step-by-step guide to help you get started:
Step 1: Choose a name
Decide on a name for your PLC. It’s essential to choose a name that’s unique and not already in use by another company. You can check the availability of your chosen name with Companies House.
Step 2: Registered office address
Choose a registered office address for your PLC. The company’s official address is where you will send all legal and official correspondence. It can be different from your company’s trading address.
Step 3: Appoint directors and company secretary
You’ll need at least two directors for your PLC, and you can also appoint a company secretary if you wish. Directors are responsible for running the company, while the company secretary ensures that the company complies with legal requirements.
Step 4: Create the memorandum and articles of association
These documents outline the rules for the company’s operations and management. They include details such as the company’s purpose, the shareholders’ rights and responsibilities, and how you will run the company.
Decide how many shares your company will issue and their value. You can give different classes of shares, each with additional rights and restrictions. Once the shares are available, the company will have shareholders who own a stake.
Step 6: Register your company
You need to register your PLC with Companies House. You must provide information about your company’s directors, registered office address, and share capital. You’ll also need to pay a fee to register your company.
Step 7: Apply for a trading certificate
Once your PLC is registered, you must apply for a trading certificate from Companies House. This certificate confirms that your company is legally allowed to trade.
Step 8: Arrange for a listing on a stock exchange (optional)
If you plan to issue shares to the public, you should list your company on a stock exchange. This will allow members of the public to buy and sell shares in your company.
Step 9: File annual accounts and other documents
Your PLC must file annual accounts and other documents with Companies House, including a confirmation statement and company detail change, such as new directors or shareholders.
Setting up a public limited company can be complex, so seeking professional advice is vital if you need clarification on any aspect of the process.
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How Do Public Limited Companies Differ from Private Limited Companies
Public limited companies (PLCs) and private limited companies (Ltd.) are different business structures. Although they share some similarities, there are several key differences between them.
The main difference between a public limited company and a private limited company is the ownership and the number of shareholders. In a private limited company, there is a restriction on the number of shareholders, which is limited to 50.
These shareholders are usually family members, friends, or a group of investors. On the other hand, in a public limited company, there is no limit to the number of shareholders, and anyone can buy shares.
The shares of a public limited company are available on a stock exchange, and the public can invest in the company.
#2. Disclosure Requirements
Public limited companies have more stringent disclosure requirements than private limited companies.
Public companies must file their financial statements and other important information with the relevant regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States and the Companies House in the United Kingdom.
Private limited companies, on the other hand, have fewer reporting requirements and are not required to disclose as much information to the public.
#3. Capital Raising
Public limited companies can raise capital by selling shares on a stock exchange. Since the stakes are publicly available, the company can issue more shares to raise money from investors.
This makes it easier for a public limited company to fund growth and expansion plans and invest in new projects and technologies. Private limited companies, on the other hand, have a more limited ability to raise capital as their shares are not publicly available.
#4. Management
In a public limited company, the management is accountable to the company’s shareholders. The administration has a legal obligation to act in the best interests of the shareholders. In a private limited company, the management is accountable to the company’s shareholders. Still, the shareholders often take part in the day-to-day running of the business.
#5. Governance
Public limited companies are subject to more stringent regulations and governance requirements than private limited companies. They must comply with various regulatory requirements, such as those set out by the stock exchange and the regulatory authorities.
Private limited companies must comply with regulations but have less regulatory scrutiny than public limited companies.
In summary, public limited companies are larger and more established businesses with more shareholders and publicly available shares. Public limited companies have more stringent disclosure requirements, can raise capital by selling shares on a stock exchange, and are subject to more regulatory scrutiny.
Private limited companies, on the other hand, are usually smaller, have a limited number of shareholders, and have fewer reporting requirements. Private limited companies also have more flexibility in terms of management and governance.
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Advantages Of Public Limited Companies
Public limited companies (PLCs) offer several advantages to investors, shareholders, and the broader economy. Here are some of the critical benefits of public limited companies:
#1. Access to Capital
One of the main advantages of a public limited company is its ability to raise capital. Since the shares are publicly available, the company can issue more shares to raise money from investors. This makes it easier for a public limited company to fund growth and expansion plans and invest in new projects and technologies.
#2. Greater Liquidity
The shares of a public limited company are available on a stock exchange, which provides greater liquidity to the shareholders. Investors can buy and sell company shares efficiently, making it easier for them to manage their investments. This liquidity also makes it easier for the company to raise capital in the future.
#3. Improved Corporate Governance
Public limited companies are subject to more stringent regulations and governance requirements than private limited companies. They must comply with various regulatory requirements, such as those set out by the stock exchange and the regulatory authorities.
This transparency helps build trust and confidence among investors, ultimately benefiting the company in the long run.
#4. Enhanced Profile
Being a public limited company provides greater visibility and credibility for the company. It is considered a more established and reputable business than a private limited company. This can attract more customers, investors, and partners and ultimately help grow the business.
#5. Access to Skilled Workers
Public limited companies have more significant resources and capital access, enabling them to attract and retain skilled workers. This can help to drive innovation, growth, and productivity in the company.
#6. Potential for Growth
Public limited companies have a more extraordinary ability to raise capital and access a larger pool of potential investors. This can enable them to expand and grow more rapidly than private limited companies. It can also help them to invest in new projects and technologies, which can provide new growth opportunities for the business.
Public limited companies offer numerous advantages to investors, shareholders, and the broader economy. They provide greater access to capital, liquidity, transparency, and growth potential, which can help to drive innovation, job creation, and economic growth.
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Disadvantages Of Public Limited Companies
Public limited companies (PLCs) are shareholders-owned business entities that operate under strict regulatory frameworks. They have many advantages, such as the ability to raise large amounts of capital and a potential for rapid growth, but they also have several significant disadvantages. This article will explore some of the major drawbacks of public limited companies.
#1. Increased Regulation and Reporting Requirements
One of the main disadvantages of public limited companies is that they are subject to strict regulation and reporting requirements. PLCs need to file regular reports with regulatory bodies such as the Securities and Exchange Commission (SEC) or the Financial Conduct Authority (FCA) and their shareholders. This process can be time-consuming and expensive, requiring substantial resources and specialized expertise.
PLC ownership is by shareholders, who have the power to make important decisions about the company’s operations. This can pressure the management team to prioritize short-term profitability over long-term growth or sustainability, as shareholders are often more interested in seeing a return on their investment than the company’s overall health.
#3. Risk of Hostile Takeovers
Public limited companies are vulnerable to hostile takeovers, where an external entity acquires most of the shares and gains control of its operations. This can be damaging to the company’s long-term prospects, as the new owners may have different priorities and strategies than the previous management team.
#4. Cost of Going Public
Going public and becoming a PLC is a complex and expensive process. Companies must meet strict regulatory requirements, hire legal and financial advisors, and prepare extensive documentation for potential investors. Additionally, the ongoing costs of maintaining public statuses, such as filing reports and compliance costs, can be substantial.
#5. Dilution of Ownership
A company typically issues additional shares to raise capital when it goes public. This can dilute the ownership of existing shareholders, reducing their control over the company’s operations. This can be a significant disadvantage for those who have invested heavily in the company and may feel that you must adequately represent their interests.
#6. Short-term Focus
Public limited companies are often under pressure to deliver short-term results and meet quarterly earnings targets. This can lead to a focus on short-term profitability rather than long-term growth and sustainability.
This short-term focus can harm the company’s long-term prospects, as investments in research and development or sustainable practices may be deprioritized in favor of immediate returns.
In conclusion, public limited companies have many disadvantages that you should carefully consider before deciding to go public. Companies should weigh the benefits of access to capital and the potential for rapid growth against the costs of increased regulation, shareholder pressure, risk of hostile takeovers, and dilution of ownership, among other factors.
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Characteristics Of Public Limited Companies
Public limited companies (PLCs) are shareholders-owned business entities that operate under strict regulatory frameworks. They are often large organizations with a significant amount of capital and offer a range of benefits and advantages over other business structures. This article will explore some critical characteristics of public limited companies.
#1. Limited Liability
One of the critical characteristics of PLCs is that they offer limited liability protection to their shareholders. However, this means that shareholders are only responsible for the amount of money they have invested in the company, and their assets are not at risk in the event of the company’s insolvency. This makes PLCs attractive for investors, as they can invest in the company without assuming personal financial risk.
#2. Large Capital Base
PLCs can raise large amounts of capital by issuing shares to the public. This enables them to undertake ambitious projects and expand their operations in ways that might not be possible for smaller businesses. PLCs can also issue debt securities, such as bonds, to raise additional funds.
PLCs ownership is by their shareholders, who have the power to make important decisions about the company’s operations. This means that shareholders have a say in the company’s strategic direction and can influence important decisions such as mergers and acquisitions, changes to the board of directors, and dividend payments.
#4. Public Listing
PLCs are available on public stock exchanges, meaning their shares are available for purchase by members of the public. This makes it easier for PLCs to raise capital, as they can sell shares to many investors. However, the public listing also means that the company is subject to greater regulatory scrutiny, as it must comply with the rules and regulations of the stock exchange and other regulatory bodies.
#5. Increased Transparency
PLCs must provide extensive information to their shareholders and the public, including regular financial reports, details of significant contracts, and information about the company’s governance structure. This increased transparency protects shareholders and ensures that the company operates responsibly and ethically.
#6. Board of Directors
The management of PLCs is by a board of directors responsible for overseeing the company’s operations and making important decisions about its strategic direction. The board of directors is elected by the shareholders and is accountable to them for the company’s performance. PLCs may also have a separate executive management team responsible for day-to-day operations.
In conclusion, public limited companies are business entities that offer their shareholders a range of benefits and advantages. They have a large capital base, provide little liability protection, and are subject to increased transparency and regulatory oversight. PLCs ownership is by their shareholders, who have the power to make important decisions about the company’s operations. The management of these companies is by a board of directors accountable to the shareholders.
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Frequently Asked Questions
A limited liability company (LLC) must have at least two directors. Shareholders are required to number at least two for a PLC to form. Having a company secretary is mandatory for a PLC. Generally speaking, a PLC’s financials are required to undergo auditing.
For a public limited corporation, the ultimate goal is to maximize shareholder returns, which means increasing profits as much as possible.
Shares of a PLC are offered to the general public through the stock exchange. Shareholders are those who own shares. They’re given a stake in the company and a vote in how things get run once they invest. The CEO and board of directors direct and monitor the firm’s operations.
A business limited by shares (or “A/S”) is one in which its shareholders contribute by the distribution of shares, and each shareholder is exclusively accountable for their investment in the firm.
The terms govern the distribution of the company’s earnings in the company’s articles of organization. Businesses that expect to generate a profit typically create limited by shares corporations, and the shareholders of such corporations are entitled to receive dividend payments whenever the corporation generates profits.
Conclusion
In conclusion, public limited companies offer a unique opportunity for businesses to raise capital through a public offering of shares. With access to a broader pool of money, PLCs can fund expansion, research and development, and other strategic initiatives.
However, setting up a PLC and going public can be complex, requiring careful planning and professional guidance. With the information provided in this guide, you now better understand what PLCs are, their benefits, and the process of going public.
Whether you’re an entrepreneur or an investor, this knowledge can help you make informed decisions and navigate the exciting world of public limited companies.
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References
- https://www.companyregistrations.co.uk/ – Complete guide to public limited companies
- https://www.1stformations.co.uk/ – Public limited companies
