What’s The Difference Between Private and Public Limited Companies?

Private Limited Companies (Ltd) and Public Limited Companies (PLC) are two distinct types of corporate entities available in the UK. For individuals looking to start a business or change their business entity, choosing the right business structure is essential, as this decision directly influences the company's ability to raise capital, the extent of regulatory compliance required, and the level of control retained by the owners.

This article discusses the differences between Private and Public Limited Companies and outlines each entity's benefits and potential drawbacks.

What is a Private Limited Company?

A Private Limited Company is a business entity privately owned by a small group of shareholders, often including founders, family members, and investors.

Benefits:

• Control: Shareholders can retain control over who becomes a shareholder, helping maintain the original vision and management style.
• Privacy: Financial information is not required to be as transparent as that of PLCs.
• Regulatory Ease: Fewer regulatory requirements make it easier to manage, especially for smaller businesses.
• Limited Liability: Shareholders are protected from personal liability beyond their investment in the company.

Potential Disadvantages:

• Capital Raising: Limited ability to raise large amounts of capital since shares are not publicly traded.
• Transferability of Shares: Restrictions on share transfers can make it challenging to attract investors.
• Perception: It may be perceived as less prestigious compared to a PLC.

What is a Public Limited Company?

A Public Limited Company is a business entity publicly traded on a stock exchange that offers its shares to the public. The number of shareholders in a public limited company is unlimited, allowing for widespread ownership by public investors.

Benefits:

• Capital Raising: Ability to raise substantial capital through public share offerings.
• Prestige: Enhanced credibility and public profile can attract investors and business partners.
• Share Liquidity: Shares can be easily bought and sold, providing liquidity for investors.
• Growth Potential: Access to capital markets facilitates business expansion and growth.

Potential Disadvantages:

• Regulatory Burden: Compliance with extensive regulatory requirements can be costly and time-consuming.
• Loss of Control: Original owners may lose control as shares are widely distributed among public shareholders.
• Transparency: Required disclosure of detailed financial information can expose the company to greater scrutiny.
• Market Pressure: Public companies are often pressured to deliver short-term performance to satisfy shareholders and analysts.

Read our guide for more information on running a Private Limited Company.

What's The Difference Between a Private Limited Company And A Public Limited Company?

Ownership

Ownership is holding equity in the company, which grants certain rights and responsibilities to the shareholders. These include the right to vote on key issues, receive dividends, and share in the company's residual value in case of liquidation.

• Private Limited Company: Privately owned by a small group of shareholders, often including founders, family members, or investors.
• Public Limited Company: Publicly owned and traded on stock exchanges, allowing for widespread ownership by public investors.

Share Transferability

Share transferability refers to the ease with which investors can buy or sell company shares. High share transferability often attracts more investors, contributing to a more stable and attractive market for the company's equity.

• Private Limited Company: Share transferability is restricted, and the sale or transfer of shares usually requires the consent of existing shareholders.
• Public Limited Company: Shares are freely transferable on stock exchanges, allowing liquidity and easy capital access. Shareholders can buy or sell shares without requiring approval from the company or existing shareholders.

Capital Raising/Funding

Capital raising involves securing funds to support business operations, growth, and expansion. This can be achieved through equity financing (selling shares) or debt financing (issuing bonds or taking loans) to enhance a company's financial flexibility, allowing it to invest in new projects, enter new markets, or improve infrastructure.

• Private Limited Company: Raises capital through private means, such as personal savings, bank loans, private equity, and venture capital. They cannot sell shares to the public, which may limit their capital raising compared to PLCs.
• Public Limited Company: Raises capital by issuing shares to the public through initial public offerings (IPOs) and subsequent secondary offerings. This access to public capital markets can provide significant funding for growth and expansion.

Regulation Obligations

Regulatory obligations encompass the set of laws and regulations businesses must adhere to, which vary depending on the industry. Compliance with these regulations is essential for legal operation and includes financial reporting, environmental laws, labour practices, and corporate governance standards.

• Private Limited Company: Has fewer regulatory obligations than Public Limited Companies. While they must still adhere to UK company law and file necessary documents with Companies House, they do not need to comply with stock exchange regulations or the extensive regulatory framework that applies to public companies.
• Public Limited Company: Must comply with the rules and regulations of the stock exchange on which they are listed, the Financial Conduct Authority (FCA), and other regulatory bodies. These regulations cover various activities, including corporate governance, financial reporting, and market conduct.

Disclosure Requirements

Disclosure requirements mandate that businesses provide stakeholders with accurate and timely information about their financial health, operations, and governance. This typically includes periodic financial statements, annual reports, and notifications of significant events.

• Private Limited Company: Has fewer disclosure and reporting requirements than public limited companies. Financial statements and other company information are typically only accessible to shareholders, directors, and specific regulatory authorities.
• Public Limited Company: Is subject to more stringent disclosure and reporting requirements than private limited companies. They are required to publish annual financial statements, periodic reports, and other company information for public scrutiny.

Control

Control is the ability to influence or determine a company's strategic and operational decisions. It is typically held by those owning a significant share of the equity or by specific governance structures.

• Private Limited Company: Control is typically more concentrated, with a smaller number of shareholders who often have close relationships with each other.
• Public Limited Company: Due to the broad ownership of shares, control can be more dispersed. Significant decisions are often made by voting at shareholder meetings, and the board of directors, elected by shareholders, plays an important role in the company's management.

In summary, private limited companies offer smaller shareholders more privacy, control, and flexibility. In contrast, public limited companies provide access to public capital markets and greater liquidity but are subject to more regulatory scrutiny and transparency obligations.

With over 40 years of experience in the industry, we are the market leader in limited company formations in the UK and offshore. For more information about our company formation services, click here.