Companies in the UK can elect to adopt different corporate structures. One such structure is a public limited company. A public limited company (also known as a PLC) is owned by shareholders. Public companies are distinct from private companies because people or other corporate entities can freely buy shares in PLCs, usually on a stock market.
There are many legal requirements and responsibilities placed on public companies. In particular, the regulatory and compliance burden on PLCs is generally stricter than the requirements placed on private companies. This additional scrutiny is counterbalanced by the increased liquidity enjoyed by public companies However, being a public company also carries increased flexibility, especially when it comes to the buying and selling of shares in the company.
So what is a public limited company, and what are some of the advantages and disadvantages of being a PLC?
What is a public limited company?
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 the shares of publicly traded companies do so in 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 period of 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.
Public limited companies vs. private limited companies
Before we weigh the key differences between a public limited company and a private limited company, let’s define what a limited company actually is.
When a business’s directors establish it as a limited company, it means a few things: limited companies have directors and shareholders, and (unless there is serious malpractice) the directors and shareholders have limited liability for the company’s performance. As Companies House says, “Assuming no fraud has taken place, 'limited liability' means you will not be personally liable for any financial losses made by the business. A limited company can give you added protection, should things go wrong.”
A limited company might be a public or a private company. But what are the key differences between a private limited company and a PLC?
Public limited company (PLC)
- Public company shares are traded on a stock exchange. Any qualifying investor is able to buy and sell shares in PLCs.
- Public companies are subject to strict regulatory requirements, disclosure and financial reporting obligations.
- Public companies must hold an annual general meeting (AGM) of shareholders.
- PLCs must have a minimum share capital of at least £50,000.
- PLCs should be able to show a consistent track record of revenue and/or earnings growth over a predetermined period (in the UK, this might be three years).
Private limited company (Ltd)
- Shares are not traded publicly: the board of directors normally votes to approve new shareholders onto the cap table.
- There is no requirement for private companies to hold AGMs (although they still can if desired).
- Generally, a private company is held to a looser regulatory and compliance standard compared to a PLC.
- Capital is typically raised through other private investors, such as venture capital or private equity firms.
If a public limited company decides that there is no longer a strategic and commercial advantage to being a PLC, it is able to move back to being a private company. Public-to-private transactions may be executed by the company’s existing investors, or by way of a deal with a third party – often a private equity firm. In the first half of 2022, private equity firms spent more than $200 billion on public-to-private transactions.
Public limited company advantages and disadvantages
While increased liquidity and freely traded shares confer numerous advantages for public companies, a company’s obligations as a public entity are more stringent. Any failure to comply with disclosure requirements on financial reports, annual accounts and other statutory obligations can bring severe penalties against the company and/or its directors.
Here is a short list of some of the principal advantages and disadvantages of public company status:
Advantages of public limited company status
- Access to capital: Ability to raise capital from retail investors as well as accredited corporate investors.
- Liquidity: Shares can be freely bought and sold on stock exchanges.
- Credibility: Enhanced credibility and perceived stability due to enhanced reporting requirements.
- Employee benefits: Can offer shares to employees that have immediate monetary value, enabling PLCs to attract and retain talent. (See Ledgy blog on long-term incentive plans.)
Disadvantages of public limited company status
- Costs of compliance: High operational costs associated with regulatory compliance and reporting. Also, higher risk of severe fines and other penalties for non-compliance.
- Higher risk of shareholder activism: Because any individual or corporate entity can buy shares in a public company, certain hostile parties may acquire stakes in the company and advocate for strategic and/or operational changes that run counter to the goals of the company’s directors.
- Short-term focus: Regular (quarterly) reporting requirements may cause directors and executives to prioritise short-term results over long-term strategic decision-making.
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.
Ledgy: automated equity reporting saves time and reduces risk for public and private companies
Public limited companies must comply with strict financial reporting requirements. Ledgy helps public and private companies manage the different reports and disclosure requirements relating to employee equity and shareholder information. Below are a selection of the regulatory and compliance reports that public and private companies can complete with the help of Ledgy:
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