Do you need to define public limited liability company? This UK term refers to a company that trades stock shares on the public exchanges.3 min read
1. Advantages of a PLC
2. Disadvantages of a PLC
3. Forming a PLC
Do you need to define public limited liability company? This UK term refers to a company that trades stock shares on the public exchanges. These types of companies must adhere to regulatory reporting requirements so that investors can determine the worth of their shares. A public limited liability company (LLC) also offers its owners limited personal liability for business debts and obligations. This business structure is similar to a U.S. corporation.
Public Limited Company is often abbreviated as PLC and it is mandatory to use this abbreviation in your company name much like Inc. must be used to designate a corporation in the U.S. Although a PLC can be listed on public stock exchanges, it doesn't necessarily have to be. Either way, if stocks are available for anyone to buy, the company's financial documents must also be available publicly.
Advantages of a PLC
- This type of company can raise money through public stock, which makes it much easier to raise capital than with a private limited company. If you are able to get your company listed on popular stock exchanges, you may even attract hedge funds and mutual funds as investors.
- Public stock sales also create a broad shareholder base, which minimizes personal risk for each owner and allows founders to profit from selling their shares while still retaining control of the business. Private companies that rely on just a few major investors often have to bow to the influence of these angel investors or venture capitalists when it comes to operating the business.
- PLCs persist after the death of shareholders and can in fact exist indefinitely. Some currently operating PLCs are hundreds of years old.
- Obtaining significant share capital makes it easier for the company to qualify for other types of capital, such as corporate loans. This lowers the amount of return you need to provide investors. Your company will be more creditworthy as a result of its public stock offerings and may be able to negotiate favorable payment and interest terms.
- Having increased capital to work with makes it much easier to grow your business by investing in new products and entering new markets, as well as purchasing other companies, making capital investments, paying off debt, and dedicating funds to research and development.
Disadvantages of a PLC
- Your business must adhere to stringent regulatory requirements designed to protect investors. A PLC must have two or more directors, register for a trading certificate, have a qualified secretary, hold annual meetings, operate transparently, and follow guidelines about money loaned to directors, share capital, and dividends. Companies listed on public stock exchanges are subject to even stricter regulations to remain qualified for listing.
- Many of the financial details of your company must be made available to the public. You will need to submit to required audits of your accounts and disclose details about the financial performance of your business. Sometimes, this leads to unwanted media scrutiny.
- Founders and directors usually own the shares of private companies, sometimes with the inclusion of a few angel investors or venture capitalists. This allows the founders to choose investors that share their vision and values for the company. Preemption rights can be used to ensure that the founders retain a controlling interest in the business. With public limited companies, however, you cannot control who purchases stock shares. This means that the founders may eventually need to divert from their original mission or even completely lose control of the company. This is a particular danger when institutional investors own enough shares to have a major influence on the company's direction, including investments made, policies and standards adopted, and major decisions.
Forming a PLC
To create a PLC, you must have at least two individuals and initial share capital of at least £50,000. Then, submit the company's articles of association and memorandum of association. The latter document must outline the starting capital for the business as well as the names of all members. These documents are filed with the proper agency in your jurisdiction. You'll need to name your business and the name may be subject to scrutiny if it contains certain words or phrases.
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