Are you thinking of setting up a business and wondering what type to go for? Or maybe you are just looking to educate yourself on the differences between PLCs and Ltds? Whatever the reason you are trying to find out the difference between the two, we have delved into the advantages and disadvantages of both PLCs and Ltds as types of limited company.
Firstly, what is a PLC and a Ltd? Key differences explained
A PLC is a Public limited company and designates a company that has offered shares of stock to the general public. The buyers of those shares have limited liability, which means they cannot be held responsible for any business losses in excess of the amount they paid for the shares.
In the UK, company law says that a Public Limited Company must have the PLC designation after the company name, for example, the oil and gas company, BP plc, and minimum share capital of £50, 000. Its company constitution also sets out share issuance rules and the nominal value of those shares.
On the other hand, a private limited company Ltd is a company structure used by private entities to run a business. This means that each shareholder’s responsibility for financial liability is limited by the value of the shares that they own but have not paid for. Company directors of such companies are not responsible for business debts.
In the UK, it only requires one person and more than zero share capital to form a limited company. The main difference is that only PLCs are publicly traded on a stock exchange, so shares in a public limited company can be freely sold, while an Ltd cannot offer shares to the public except through private placements.
Advantages of a PLC
To begin, let’s take a look at the advantages and disadvantages of a PLC
Growth and expansion opportunities – By having more finance than an Ltd a PLC can pursue new projects, new products, or new markets and make a capital expenditure to support and enhance the business. A PLC can also make acquisitions (whether in cash or by offering shares to the shareholders of the target business) as well as funding research and development.
Prestigious profile and confidence – Having ‘plc’ at the end of a company name can add standing, reputation, and prestige. A sense of status comes with having a public limited company than its private company counterpart which can affect how the business is viewed. That transparency can also improve brand recognition, and listed PLCs often coordinate with equity analysts to enhance visibility.
Share capital for additional finance – The PLC has the ability to raise capital from the public market and broader capital markets through share capital. This means public companies can make public offers of shares, which must follow the UK prospectus regime, and are better suited to businesses needing significant capital for growth. Also, the PLC could raise debt by issuing non-convertible debentures or bonds (unsecured bonds that cannot be converted to company equity or stock) In IPO and bonds, both retail and institutional investors can participate.
The shareholders have limited liability – This is a huge advantage for a number of reasons. Firstly, by protecting the shareholders from liability for the acts of the corporation, such individuals are willing to invest in the enterprise. Secondly, limited liability protects the personal assets of a shareholder from claims made against the corporation.
Increased negotiation opportunities – PLCs can get better deals! Increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale.
There’s an exit strategy – The going public can enhance the options for the founders to exit the business at some point in the future if they wish to do so. Both higher transferability of shares and the increased visibility of the business and its performance may increase the chances of bid interest from potential suitors. However, that public status can make exits more complex despite the wider pool of buyers.
Disadvantages of being a PLC
As with anything, there are also disadvantages you must consider before setting up a PLC. Some of these include, but aren’t limited to;
You need to lay down the cash first – PLCs can be very expensive to set up as they require a minimum share capital of £50,000.
Bigger legal requirements – To help protect shareholders, the legal and regulatory requirements for a public limited company go a little deeper than those of private limited companies. PLCs are also subject to more stringent regulatory requirements and wider regulatory obligations than private companies.
For example, additional restrictions/legalities include, but are not limited to obtaining a trading certificate from Companies House before the company can trade (there is no such requirement for a private company). PLC’s need to have at least two directors, appoint a company secretary who must be a qualified company secretary as part of its governance rules, and hold an annual general meeting as a formal compliance expectation, whereas in a private company decisions can more often be made by resolution. Directors in PLCs must also follow stricter governance rules, and major constitutional or share capital changes will often need shareholder approval.
More complex accounting requirements – With a bigger company and even bigger start-up costs along with the involvement of shareholders, you can expect more complex accounting and reporting requirements. PLCs also face stricter financial reporting and stricter financial regulations than Ltds, which increases operational costs.
Risk of a hostile takeover – The PLC lacks control when it comes to shareholders which would lead to potential problems. There is a greater risk of a hostile takeover by a rival company as the company cannot control who buys its shares.
Give the shareholders the profits – Shareholders will expect to receive a percentage of the profits as dividends.
A clash of opinions – Another issue that may arise with the PLC is that shareholders may clash when making decisions about the business, this could lead to a conflict of interest.
Advantages of being a private limited company (Ltd)
Are you interested in setting up an Ltd? Weigh up your options by reading the advantages below.
Minimising personal liability – The huge benefit of forming your own Ltd company is the limited liability protection that comes with it. In layman’s terms, if your company runs into some financial trouble, your personal assets will remain secure. This is because a limited company is treated as a separate legal entity; a legal ‘person’ in its own right. The huge advantage here being the business is entirely separate from the people who own and manage it. So if the business goes bust, you shouldn’t. Any debt, losses, or legal claims associated with the Ltd company are the responsibility of the company itself – not its owners, although directors can still become personally liable in cases of wrongful conduct, insolvency issues, or personal guarantees.
Professional looking – Some businesses make the leap from being a sole trader to an Ltd. This can lead the way to a more professional-looking image, and with looking more professional to the general public comes huge benefits such as attracting more clients and investors, accessing a wider range of lending opportunities, expanding into different locations or markets, and creating a valuable and trusted brand identity. For a business owner, it can also be an appealing route because many private companies choose an Ltd to maintain control while still looking established, with greater control and privacy for owners than a PLC. You may also find that you would be competing on an even playing field with other businesses in your industry sector.
Better deals from the taxman – Are you currently a sole trader? If so, you will be paying more tax than an Ltd. Sole traders pay 20-45% Income Tax on their profits, whereas Limited companies in the UK currently pay only 19% Corporation Tax on profits. Needless to say, this is a huge advantage to having an Ltd and it also offers greater flexibility for tax planning. Moreover, if you set up a Limited company, you can reduce your Income Tax and National Insurance Contributions (NIC) by taking a combination of a salary and dividends. If you keep your director’s salary below the NIC Primary Threshold (PT), you will not have to pay any Income Tax or Class 1 National Insurance on those earnings. Furthermore, the company will not pay Corporation Tax on the salary, because wages are a deductible business expense.
Investment and lending opportunities – It is possible for Limited companies to have multiple owners, so if additional capital is needed, it can be raised by selling portions (‘shares’) in the business to new investors. An Ltd remains privately owned and is usually funded by founders, private investors, or other interested third parties rather than the public, and it generally has fewer compliance and reporting obligations than a PLC, helping directors focus on maintaining company security. Generally, Limited companies also have access to more lending opportunities than sole traders, and certain banks will only lend to incorporated businesses. Also, it is often possible to secure a loan for a company without the need for shareholders or directors to provide security against their own property.
Disadvantages of an Ltd
Companies house – An Ltd must be registered with companies house who will make the company information publicly available on their website. You will be required to pay an incorporation fee to Companies House. This means companies must provide the details of who their shareholders and directors are, as well as file a copy of their annual financial accounts. Compared with a PLC, private companies have fewer regulatory obligations, although both must still maintain accurate financial records.
Name restrictions – It’s not so easy naming a company. Company names are subject to certain restrictions. It must be unique – it cannot be the’same as’ or ‘too like’ the name of an existing company. It must end with “Limited” or “Ltd” and certain characters, signs, symbols, and punctuation are not permitted.
A bad financial past can inhibit you – You cannot set up a limited company if you are an undischarged bankrupt or a disqualified director. So if your past looks anything like that then you might have to think twice about the skype of business you’ll be starting.
Accountancy costs – Unless you are a real whizz with your accounts then it’s a very good idea that you hire an accountant for your limited company in order to deal with your taxes. It is not worth risking getting your tax calculations wrong or filing a tax return late etc. Some of the tasks that an accountant can do for you include, filing your company tax returns, paying your corporation tax, as well as filing your VAT returns (if applicable). This means that you will need to pay the accountancy fees, which can be quite steep, so try to find a good reputable accountant.
Your records aren’t private – Public records – If you like to keep your business aspects private, remember an Ltd sits among private and public companies but is not publicly traded, even though some information still appears on the public register. As a limited company owner, you have to register your business with the Companies House in the UK. This means that you provide information on company accounts, company records, company directors, and company shareholders. The information you provide to the Companies House is then published and can be accessed by anyone. This reduces the level of privacy a business has. If you trade as a sole trader, your privacy remains.
There are more than 4 million limited companies registered in the UK, and over 500, 000 new companies are incorporated each year so it’s safe to say people are fond of this type of business. Hopefully, after reading this you are a little clearer of the differences and advantages/disadvantages of the different limited company structures.
Are you thinking of setting up a business and wondering what type to go for? Or maybe you are just looking to educate yourself on the differences between PLCs and Ltds? Whatever the reason you are trying to find out the difference between the two, we have delved into the advantages and disadvantages of both PLCs and Ltds as types of limited company.
