Understand the difference between a Private and Public Limited Company

In the UK, there are various different types of companies that you can operate if you want to run a business.

It is important to understand the types of companies you can set up in the UK, the differences between a private and public limited company and the stage of your business lifecycle that you may need to consider your company structure.

In this blog, we will give you the key differences and look at what the benefits are of each type of company and when each structure could be right for you.

Types of limited companies in the UK

There are a number of types of companies that can operate in the UK, these are:

• Private limited by shares (Ltd) - these tend to be the most common type of registered UK company.

• Private limited by guarantee (Ltd) - less common.

• Limited liability partnership (LLP) - these types of companies are often used in sectors such as professional services or consultancy.

• Public limited company (PLC) - often used by bigger companies to offer shares to the company to raise capital.

• Private unlimited company - also known as sole traders.

What are Private and Public Limited Companies?

Definition of Private Limited Companies

• A private limited company is a business structure that gives owners limited liability protection.

• Private limited companies are owned by shareholders who hold shares in the business.

• Private limited companies are not listed on the UK stock exchange.

Definition of Public Limited Companies (PLCs)

• A Public Limited Company is owned by shareholders and managed by directors.

• Public Limited Companies offer their shares to the general public through a stock exchange.

• Public companies are listed on a stock exchange, such as the London Stock Exchange or the Alternative Investment Market.

Key Differences between Private Limited Companies and Public Limited Companies

Ownership and control

There are rules around the ownership structure of both public and private companies.

• Private companies require at least one director but do not require a Company Secretary.

• Public companies require at least three people, at least two directors and a suitably qualified Company Secretary.

• Public companies offer shares to the general public, meaning they can end up being owned by a large number of shareholders.

Annual general meetings (AGMs)

AGM requirements differ between the two types of company as follows:

• Limited companies are not obliged to hold annual general meetings but can opt to hold them.

• A public limited company must hold an AGM within 6 months of the accounting reference date having passed.

Reporting requirements

• Public status means that PLCs have much stricter reporting and regulatory requirements.

• Private companies have less stringent reporting requirements than PLCs.

• PLCs must publish full, audited accounts whereas limited companies can file abbreviated accounts if their turnover is below the audit threshold.

• PLCs must comply with disclosure obligations, listing rules and a corporate governance code requiring more compliance expertise.

• Privately owned limited companies have fewer compliance requirements such as market listing rules, governance codes and investor relations.

Share capital

• A private company limited by shares has a minimum share capital of one share worth £1.

• Public companies have minimum share capital requirements meaning they cannot trade until they have a minimum of £50,000 worth of shares, with the requirement that a quarter of this share capital paid up (i.e. a minimum of £12,500).

Share buyback rules

• A PLC can only buy back its own shares if it has sufficient distributable reserves (i.e. profits available for distribution) and if the buyback is approved by a special resolution of the shareholders.

• A limited company can buy back its own shares using any available funds subject to certain restrictions (the buyback must not reduce the companys net assets below the total of its called-up share capital and undistributed reserves).

Liability and debt

• Limited companies are separate legal entities from their owners and can enter into contracts, own property, and incur debts in their own right. This legal separation protects owners, as the company’s debts and liabilities are typically not directly transferred to them.

• Similar to a limited company, the members of a PLC have limited liability, meaning they are not responsible for the companys debts unless they have given personal guarantees on business loans. Each individuals liability is limited to the value of the shares they hold.

Trading permissions

• Private limited companies can engage in business activities immediately once they are registered with Companies House.

• Public companies must obtain a trading certificate from Companies House before they trade. This process takes longer than the registration of a limited company.

Naming

• Public limited companies must use the abbreviation ‘PLC’ at the end of their company name.

• Private limited companies use the word ‘Limited’ or its abbreviation ‘Ltd’ at the end of their name.

Accounts submission deadlines

• Private limited companies must submit their annual company accounts within nine months after the end of the financial year to Companies House.

• Public limited companies must submit their annual accounts within six months after the end of the financial year to Companies House.

Conclusion

There are significant differences between private limited companies and public limited companies.

PLCs tend to be larger businesses trying to raise capital for expansion or to achieve their business goals. PLCs have much more stringent reporting and regulatory requirements than a private limited company.

Private limited companies are owned by less shareholders that have greater control over decision making. Privately owned companies tend to raise money for growth through business loans or via external investors.

Most business owners opt to start a business as a private unlimited company (i.e. a sole trader) or as a limited company. Only when a business grows to a certain size and seeks large scale investment is it worth considering becoming a PLC.

For more help and advice on limited companies, contact us today at 033 0088 3616, email contact@dnsaccountants.co.uk, or book a free consultation.

Speak with an expert

Any questions? Schedule a call with one of our experts.

Book a call