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 quench your thirst for knowledge we have delved deep into the advantages and disadvantages of both PLCs and LTDs.
Firstly, what is a PLC and a LTD?
PLC stands for Public Limited Company. A PLC designates a company that has offered shares of stock to the general public, moreover, 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 U.K, 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.
On the other hand, a limited company is an organisation that someone would set up to run their 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 to form a limited company. The main difference is that the shares of a public limited company can be transferred freely on the stock exchange to anyone, a private limited company cannot sell shares this way.
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.
Share capital for additional finance – The PLC has the ability to raise additional finance through share capital. This means Public companies can raise money via stock exchanges through an initial public offering by issuing additional equity shares. 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.
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 you require a minimum set up cost 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. 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), the need to have at least two directors and AGMs must be held, whereas in a private company decisions can more often be made by resolution.
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.
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 an 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.