What is the difference between a public limited company and a private limited company?

Since 2017 and 2021 contractors have had extra good reason to know their public sector from their private sector, respectively. But regardless of time, it’s similar with a public limited company and a private limited company because they too are different from each other – largely, writes Nick Hood, a consultant for Opus Business Advisory Group.

What a public limited company and private limited company share

But let’s start with what isn’t different. Both public and private limited companies give their owners (shareholders) and directors protection from business debts. Their liability is limited to losing the amount of share capital they have put in. They have no obligation to pay creditors personally, apart from any they have guaranteed or in certain exceptional circumstances.

Both pay corporation tax on their profits, currently at a rate of 19%, instead of on self-employed earnings which can be taxed at between 20% and 45% (soon to be reduced to 40% after the recent mini-Budget). Tax liabilities should be lower if rewards are taken via a mix of salary and dividends.

What else do PLCs and Ltds have in common?

Furthermore with a both a public and private limited company, the affairs of the business are public in that they can be analysed via Companies House documents. There are no public filing requirements for sole traders or unlimited partnerships.

Now let’s look at the differences between a public limited company (‘PLC’) and private limited company (‘Ltd’). Some of the differences are definitive. Initial set up costs are higher for PLCs because the fixed share capital must be at least £50,000, whereas there is no lower limit for a Ltd, which might have share capital of as little as £1. Similarly, a PLC must obtain a trading certificate from Companies House before it can trade. There is no such restriction for a Ltd.

Governance, accounts, and perceptions

There is more governance formality for public limited companies than private limited companies. For example, a PLC must have a minimum of two directors, whereas a Ltd can have only one director. Further, a PLC must also have a company secretary, whereas a Ltd no longer needs to have a company secretary at all. And a PLC must hold an Annual General Meeting (AGM) of shareholders – a Ltd need not do so.

As to accounts, these need to be filed at Companies House more quickly for PLCs, as they must file within six months of their accounting year-end. while a Ltd has nine months.

Other differences between public limited companies and private limited companies are less tangible. For instance, the perception of PLCs is that they are more serious and sophisticated organisations than their private ‘Ltd’ counterparts. This perception can make a real difference when looking for debt-funding from lenders, even though such decisions should really be based on the numbers, the people and the business plan -- not the company’s constitution.

Further financial implications of PLC over Ltd

This perceived status and credibility advantage of PLCs may also provide commercial benefits, for example in bidding for contracts against Ltd competitors or negotiating prices with suppliers. However, just to reassure you if you’re a limited company, it shouldn’t make any difference in terms of creditworthiness or credit terms.

Sticking with the financials, one major benefit often touted for PLCs is that raising equity finance by issuing shares is easier because investors find PLCs a more attractive vehicle with better prospects of being able to sell or trade in the shares.

But this is really only the case if the PLC is listed on a stock exchange like the LSE or the AIM market, or one of the less well-known trading platforms. If the PLC is unlisted, there is little difference to shares in a Ltd.

Penultimately,  don’t forget that crowdfunders invest in limited company shares

Be aware, it is true that shares in a Ltd can be difficult to trade, especially if you have a minority stake in the company. Nevertheless, there are countless examples where professional investors, such as venture capitalists, private equity players and especially crowdfunders, will invest in the shares of a private limited company.

Finally, one last (also perceived) benefit of a PLC is that the structure provides an easier exit route for shareholders.

But here again, this depends very largely on whether the company is listed or not. Shares in a Ltd can be sold successfully to third parties and sometimes those in a listed PLC can be difficult to shift, depending on the company’s financial profile and the future prospects of the business it runs. If it ticks the right boxes, there will be investors ready to take shares off the hands of a seller no matter, what the legal format is.

In closing, remember the old adage…

As you can see, there are pros and cons to being either a PLC or a Ltd, so talking it over with an adviser is always sensible. But ultimately ‘you pays your money’ -- as the adage goes, and following on from that, when it comes pitting public limited company against private limited company, ‘you makes the commercial choice best suited to your business’s circumstances.’