What is a Public Limited Company (plc)? - Pros and cons of PLCs

What is a public limited company (plc)?

A public limited company is a company whose shares are listed on a stock exchange and can be bought and sold by retail and institutional investors. 

A plc will have a board of directors and often a CEO who oversees the day-to-day running of the company. The goal of the board and the CEO is to increase shareholder value or returns. Public companies can issue a percentage of their earnings per share as a dividend, and shareholders are usually granted voting rights at annual general meetings (AGMs) or other votes.

How does a public limited company work?

Over the lifespan of a company, it may move through various corporate structures. Often, a business may incorporate as a private company, before transitioning to become a publicly listed entity as it becomes more mature.

Why does maturity and scale matter? Generally, people or corporate entities buying publicly traded shares do so with the expectation that the shares will increase in value over time. Buying a share in a publicly listed company is, in a sense, investing in a portion of that company’s future cash flow, which is why revenue and earnings growth is a popular way to value businesses. 

Shareholders want to be confident in the company’s ability to continue growing revenues and/or profits over time. Usually, ‘mature’ companies can exhibit reliable and consistent revenue and earnings growth over time. Indeed, a revenue-earning track record – defined by the UK’s Financial Conduct Authority as a “record of consistent revenue, cash flow or profit growth throughout the historical financial information” – is a requirement to obtain a listing in the London Stock Exchange’s premium segment (more on these segments in the ‘PLCs in the UK’ section below). 

Exhibiting predictable revenue and earnings growth is only one component of public limited company status. Any public limited company requires a board of directors and shareholders. In the build-up to going public, a private company may choose to bring on board new directors with previous experience working in public companies. 

Part of the reason companies may seek to bring experienced executives and/or company directors on board is the stiffer financial reporting requirements placed on public companies. A private company does not need to report its finances in the public domain apart from when it files its regular accounts with the tax authority. A public company, on the other hand, must file quarterly and annual reports on its financial performance. These reports are detailed and can place new burdens on finance, treasury, tax, operations and legal teams.

Advantages of a public limited company

Access to capital/liquidity

While private companies must raise money from private investors, shares in public companies can be bought and sold freely. Plcs can raise significant capital by issuing shares to the public, especially at IPO whereby the company issues new shares on the public markets for the first time. The cash injection at IPO (initial public offering) can provide companies with the funds they need for strategic initiatives such as expansion into new markets or for increased research and development activity. 

In contrast, the relative illiquidity of private companies means that raising capital is potentially more uncertain, with more agreements required between existing board members or shareholders and potential new investors. 

Employee incentives and other benefits

Plcs often implement an employee stock ownership plan (ESOP) and offer other equity-based incentives – such as LTIPs for senior executives – to hire and retain talented employees. Public companies can tailor equity-based incentives to match changing growth ambitions and talent strategies. For example, some attrition of early employees and existing shareholders might be expected, and the company may need to attract a different profile of new hires to account for increased reporting and compliance challenges post-IPO. 

To fit the new reality of life as a public company, plcs may choose to set up new share schemes such as share incentive plans (SIPs), Save as you Earn schemes and/or RSUs. Companies can make plans more flexible by customising vesting schedules, adjusting employee benchmarks, or adding market and non-market performance conditions reflecting revenue, profitability or share price targets.

Share plan management can be complicated. But it doesn’t have to be. Ledgy makes it easy for private and public companies to manage equity, freeing up capacity and remaining compliant. With all-in-one equity plan automation software, from early-stage setup to complex management and reporting, you can be confident when dealing with equity.

Trust and reputation

Being listed on a stock exchange can enhance the company's credibility and image. During the IPO process and in economic booms, it is common for publicly listed businesses to benefit from increased interest and therefore it could reflect in the company's share price. It may be perceived as a more stable and reputable business to financial institutions and outside investors, enhancing the desire to invest.

Public limited companies are subject to heightened disclosure requirements and scrutiny from analysts. In many cases, publicly available quarterly reports are used as a measure of success and will be a key performance indicator for interested third parties. 

The additional scrutiny and regularity in reporting builds reputation and trust with retail investors. The pressures and hurdles that public companies face provide as a good litmus test for stability, credibility and potential for further success. 

Private limited companies commonly see PR efforts and significant boosts in awareness linked to funding rounds during their growth. 

Risks of becoming a public company

Costs of compliance

For public limited companies compliance takes up significant overhead. More resource is required to handle statutory legal and regulatory obligations, and quarterly reporting places an additional burden on multiple departments. Of course, the cost of errors or delays can be significant, if you are having your company accounts audited or teams are extracting data from multiple sources for annual accounts reconciliation or equity compliance reports, there could be human error given the significant administrative workloads. This can be automated or made easier by software for financial reporting freeing up time for your compliance teams and safeguarding against avoidable errors or missed deadlines.

Loss of control

With the sale of shares accessible to the public, the original owners of the plc could lose control over the company. In the rare case of a hostile takeover, an individual or entity could purchase enough shares (over 50%) with voting rights that were issued by the plc, therefore gaining majority control of the company.

Market scrutiny

Public companies are subject to intense scrutiny from analysts, the media, and the public. Revenue and profitability, as well as growth trajectory, will be regularly assessed and debated. When it comes to equity incentives, a much broader base of shareholders will be able to vote on resolutions relating to remuneration, which may shine a new spotlight on senior executives.  

Comparing public limited companies to alternative business structures 

We’ve prepared a comparison table to help you understand the key differences between these different structures at a glance. 

Should private companies go public?

The decision to go public is highly significant with many different factors to consider. Typically, a private company that has reached a significant scale and attained a position of market leadership in a particular market or vertical, might be considered a sensible candidate to raise capital from the public markets. But there is no ‘right’ and ‘wrong’ approach, and every company is different.

Team members from around the company regard an IPO as a crucial milestone. And often, IPOs can create significant wealth for long-serving employees. So companies must design equity incentives that align all stakeholders as the company transitions from private to public. 

Ledgy helps make equity management simple and engaging for all teams involved in equity plan administration. Ledgy automates many of the repetitive manual processes that help companies make equity more tangible for their teams. Meanwhile, a market-leading focus on compliance and risk management ensures that companies can prepare to take the next step with confidence.

PLCs in the UK financial markets

The UK has two regulated stock exchanges: the London Stock Exchange and the much smaller Aquis Stock Exchange. Some of the world’s largest companies, such as AstraZeneca, HSBC, Unilever and Diageo, are listed on the London Stock Exchange. 

The London Stock Exchange’s main market operates two listing segments, premium and standard, for its constituent companies. Companies with a premium listing broadly have higher compliance standards to meet than companies with a standard listing. Companies need a premium listing to qualify for inclusion in the LSE’s FTSE share indexes, such as the FTSE 100 – the index of the 100 largest companies listed on the LSE by market capitalisation. 

Premium listings come with other additional compliance requirements, such as having audited financial information that’s no more than six months old. (As of February 2024, the FCA has proposed measures to simplify stock market listings in the UK which include merging the premium and standard listing segments.)

The London Stock Exchange Group also operates the AIM market, a separate exchange designed for faster-growing small and medium-sized companies. Different markets with varying areas of focus provide a range of options for companies seeking to list in London.

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