The Pros and Cons of Public Limited Companies
A Public Limited Company or PLC is a business with limited liability but which has the option to sell shares to the general public. These companies need to have a minimum of £50,000 share capital and put the letters PLC after their name.
All you need to register as a PLC is two directors and a secretary and there are only a few instances where you might be ineligible: You need to be over 16 and cannot be an undischarged bankrupt.
The Benefits of a PLC
While a PLC is also a limited company and shares the advantages of that structure, there are additional benefits.
- A PLC can, first and foremost, raise capital by selling shares in the company. This is usually a lot greater than the amount which can be raised when you are only a limited company
- Having your stock listed on a recognised exchange means that you can also attract investment from a wide range of sources including hedge funds and other traders
- If you have a large number of shareholders, you’re essentially spreading risk in the company which can be useful. If managed properly, it can also prevent just one individual holding so many shares that they have an unreasonable control over the future and growth of the business
- The tag of PLC can be a more attractive proposition when it comes to finding finance for growth or for certain new projects because creditworthiness is increased. That means banks and other avenues of finance might be more willing to offer loans and credit arrangements than they would if just dealing with a limited company
- That availability of readily available finance, particularly in difficult economic periods, can enable a company to push forward with expansion plans, acquire other businesses and to fund research and development which would otherwise have to be put on hold
- Shareholders benefit from the fact that shares can be bought and sold and there is better liquidity overall. Those who created the company may also decide to sell and being a PLC can make the company more attractive to potential buyers
- Finally, there is more prestige and people feel more confident about a business and its reputation and that acts as a form of free publicity
The Disadvantages of a PLC
As with any company formation there are some disadvantages for changing to a PLC.
- The focus is more on protecting the shareholders. That means there are more statutory and legal requirements that your company now has to adhere to. For instance, you need to have a secretary, apply for a certificate of trading and stay on the right side of rules for loans to directors, all of which you don’t have to do with a standard limited company. You have to hold regular AGMs, there are restrictions concerning share holdings and you will require an annual audit
- The level of transparency required for a PLC is much higher than with a limited company. Accounts need to be audited, providing fuller information concerning performance should be made available to anyone who wants to see them
- While with a limited company you can maintain control over who has shares, this is a lot more difficult to achieve with a PLC. If you are the original owner of the company you could find yourself in the position where you lose control over your business because someone has bought up a significant amount of shares. It can also mean that you spend a lot of your time trying to assuage shareholder expectations rather than moving the company in the direction you wanted. You may also be vulnerable to a takeover
- You may become far too focused on the short-term benefits of the share price, particularly when the business is initially floated on the stock exchange. That could mean compromising or missing out on your overall strategic plan for growth
- Finally, the amount of finance that is required to go PLC is higher than with a limited company. You have to have £50,000 share capital and a quarter of this needs to be paid up. That entails you investing a minimum of £12,500 in to your business. Because the running of a PLC is more complex there may well be higher costs here too, especially as your business starts to grow
The pros and cons of becoming a Public Limited Company (PLC) mean that most businesses opt for this solution when they have forged a strong enough path in the market and their future success is more or less guaranteed. Getting it right can seriously improve the financial strength of your business and move you forward to the next stage of company development. Getting it wrong can be catastrophic and you should always get the best advice you can before going down this route.
If you do want to change to a PLC company structure, please get in touch with our Company Secretarial team.