There are several different types of businesses, the most common of which are Private (Ltd) and Public (Plc) Limited Companies.
A Private Limited Company (Ltd) is a corporation owned by individuals. The responsibility of the investor is limited to their ownership interest, and shareholders are prohibited from publicly selling their shares.
A Public Limited Company (Plc) is one that has been granted approval to sell registered shares to the general public through an initial public offering (IPO) and is listed on at least one stock exchange. A public company is not permitted to begin operations immediately after receiving its certificate of incorporation. It must receive another certificate in order to be able to operate as a public corporation.
Both private and public limited companies have their own set of benefits and drawbacks.
The advantages of Private Limited Company
- Members: According to the Companies Act 2006, you can form a private limited company with at least one director who is a natural person.
- Perpetual succession: According to corporate law, perpetual succession ensures that the company continues to survive even though one of its owners or members dies, declares bankruptcy, leaves the company, and transfers his shares to another.
- Restricted liability: Each shareholder or member's liability is limited. This ensures that if the company incurs a loss, the company's shareholders are obligated to sell their stock to pay off the debt or liability.
The disadvantage of Private Limited Company
- Selling stocks: A private limited company's stock cannot be sold or transferred to others unless the other shareholders' consent.
- Name limitations: The names of limited private companies (Ltd) are subject to certain restrictions and must be licenced and authorised by Companies House.
- Lack of privacy: By establishing an Ltd, a wealth of information is made public (via the Registrar of Companies House), increasing the risk of the owners' and the Ltd's private information being revealed.
The advantages of Public Limited Company
- A company must have at least two directors to be considered public.
- A public company may collect capital from the general public by selling stock on the stock exchange. Bonds and debentures are unsecured loans given to a corporation based on its financial results and reputation.
- Transparency: Public limited companies are tightly monitored and are required by regulation to report their full financial statements regularly in order to ensure that their owners (shareholders) and prospective investors are aware of the company's true financial status. It is important to determine the market value of the company's stock.
The disadvantage of Public Limited Company
- Policy statement: A public limited company must issue a prospectus because the public is invited to pay for the company's shares. Taking a company public is a costly and time-consuming operation.
- Temporariness: When a public limited company is listed, the market may exert additional pressure. The company's share price reflects the market's perception of the company's worth, and (potential) investors should expect a healthy return. There would be a desire for the share price to rise in addition to dividends paid from earnings.
- Takeovers are more likely to occur: If a majority of shareholders consent to an offer, a public limited company may become vulnerable to a hostile takeover. Since shares are freely transferable, a prospective bidder may build up a shareholding before attempting to make an offer.
Both private and public limited companies have their benefits and drawbacks but it’s all about doing what’s best for your company. If you still have further questions or want a consultation, please contact Persona Finance (enquiries@personafinance.co.uk).
