A PLC can be a listed or unlisted business on stock exchanges and generally must include "public limited company" or the letters "PLC" as part of its legal name. But, some private limited corporations are formed pursuant to special laws and are exempt from having any distinctive suffixes.
How a PLC Works
PLC, or Public Limited Company, is a type of corporation in the UK that offers shares to the public. Shareholders who purchase these shares have limited liability, meaning they are only responsible for the value of their shares and are not accountable for the company's losses beyond their investment. This structure is similar to that of publicly listed companies in the U.S. PLCs are subject to regulatory oversight, and they are obligated to provide regular financial disclosures to both current and potential shareholders about their financial status.
Requirements for a PLC
UK company law mandates that a Public Limited Company (PLC) must register not only with its corporate name but also include "PLC" in its name to denote its legal structure. These companies are required to have a minimum issued share capital of £50,000. Similar to publicly traded companies in the U.S., a PLC in the UK may offer various types of shares, including preferred shares, with common stock in a PLC functioning similarly to common stock issued by U.S. corporations.
PLC's may issue cumulative preferred stock, which shares characteristics with preferred stock in the U.S. Additionally, PLCs must comply with specific regulatory requirements, such as issuing shares in return for director appointments and meeting all registration obligations.
PLCs based in Wales, Scotland, or England are required to register with Companies House, which is part of the Department for Business, Energy & Industrial Strategy. A PLC must have at least one director to be compliant, although most PLCs are managed by at least two directors. Almost anyone can be a director, but there are exceptions, such as individuals with bankruptcy restraining orders, or those who are under 16 or over 70 years of age.
Shareholders in a PLC must be given the opportunity to purchase all or part of the shares during the company's formal incorporation. The company’s memorandum of association must list the names of members who have agreed to purchase shares, along with the number of shares each member will buy. These members are referred to as subscribers.
The company has to have allotted shares worth at least PS50,000, and one-quarter are completely paid. The PLC is similar to publicly traded companies in the U.S. and can have various shares available, all with different conditions and specific characteristics associated with the shares.
Advantages and Disadvantages
The primary advantage of forming a Public Limited Company (PLC) is the ability to raise capital through public stock offerings. Being listed on stock exchanges draws attention from various investors including hedge funds, mutual funds, professional traders, and individual investors. This increased visibility makes it easier for a PLC to gather the necessary capital to reinvest into the business.
However, PLCs in the UK are subject to more stringent regulations compared to private companies. For instance, U.S. PLCs are required to conduct annual general meetings that are open to all shareholders and adhere to higher standards of accounting transparency. Being public entities, they also face potential risks from shareholder activism and takeover attempts by competitors.
As a PLC, a company benefits from enhanced access to capital markets and provides liquidity for its shareholders. Similar advantages are observed for organizations listed in the U.S. Nonetheless, transitioning to a PLC entails tighter regulatory scrutiny and more comprehensive reporting obligations. While this can help attract more shareholders, it also means that the company's value might become more volatile as it reflects market perceptions and financial instrument valuations.
PLC vs. LTD
PLC is a public company in the U.K. There are also private limited companies which are private corporations within the U.K. The shares that belong to a private business are not sold openly to the public. Private companies remain incorporated typically through companies housed at Companies House. They are legally required to possess legal documents to establish the business. Private companies need at least one director.
The company must be a PLC to raise capital through an investment that is public within the U.K. PLCs function like LTDs however; they are publicly traded with shares that can be traded and sold on stock exchanges. Additionally, PLCs must be governed by at least two directors. They also organize annual shareholder meetings.
