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What are the differences between a Ltd Co and a Plc?

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Well over 95% of limited companies in the UK are “private” – it is by far the most common form of limited company.

The main advantages of a being public limited company are:

  • Better access to capital – i.e. raising share capital from existing and new investors
  • Liquidity – shareholders are able to buy and sell their shares (if they are quoted on a stock exchange)
  • Value of shares – the value of the firm is shown by the market capitalisation (based on the share price)
  • The opportunity to more easily make acquisitions – e.g. by offering shares to the shareholders of the target firm
  • To give a company a more prestigious profile

As always there are some disadvantages to being a PLC (as opposed to remaining as a private company).  The main downsides are:

  • Once listed on a stock exchange, the company is likely to have a much larger number of external shareholders, to whom company directors will be accountable
  • Financial markets will govern the value of the company through the trading of the company’s shares, and will represent the market’s view of the company’s performance over time
  • Greater public scrutiny of the company’s financial performance and actions

These are the main differences in summary:

  1. You must use the description ‘PLC’
  2. A public company must have issued share capital to a nominal value of £50,000 of which 25% must be paid up.
  3. Only public companies can offer their shares to the public
  4. There are strict rules that shares must be issued for full value
  5. PLCs must file their accounts within 6 months from their year ends
  6. PLCs must have two directors
  7. PLCs must have a suitably qualified company secretary
  8. PLCs must hold AGMs when the accounts can be received
  9. PLCs cannot approve written resolutions unless authorised by the articles
  10. There are strict regulations on PLCs purchasing or providing financial assistance to purchase their own shares
  11. Traded PLCs cannot place restrictions on transfers of its shares. Otherwise such restrictions in the articles are permitted
  12. Election of directors at general meetings must be in separate resolutions
  13. PLCs cannot take advantage of the abbreviated accounts regime (but nor can larger Ltd Co’s)
  14. Listed PLCs can hold shares in treasury (with limits)
  15. Listed PLCs must have their remuneration report approved at the AGM
  16. PLC directors can only have authority to issue shares for five years
  17. A PLC articles cannot exclude pre-emption rights on the issue of new shares
  18. PLC financial results must use International Accounting Standards if listed but unlisted Plc’s can use UK GAAP
  19. Nominees of PLC shareholders where the PLC is listed on a regulated market can nominate information rights for the shareholders
  20. The articles of PLCs must have a specific authority to enable the board to authorise a transaction where the director has a conflict of interest

steve@bicknells.net

UK Private Limited Company Formation – A brief guide.

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Image courtesy of renjith krishnan  / FreeDigitalPhotos.net

What is a private limited company?

A private limited company is a company limited by shares.  The company is run by its directors on behalf of its shareholders.  There must be at least one director and one shareholder for any new private company.  The same person can be director and shareholder.  The shares in a private company cannot be traded on a stock exchange, this is only open to public limited companies.

A limited company is a legal person, which means that it is separate from its owner’s finances.  This legal separation brings various advantages and obligations / disadvantages that you would need to consider before setting up a company for your business.

Limited company advantages

Some of the reasons business owners decide to incorporate a company include:

  • Separation of the business from the owner’s personal finances and other business interests.
  • Limitation of personal liability (limited to unpaid share capital).
  • Tax benefits (Corporation tax is currently lower than personal tax rates).
  • Greater credibility with banks, funders, suppliers and customers.

Limited company disadvantages

With the rights that a limited company enjoys come responsibilities and restrictions including:

  • Requirements for governance procedures e.g. annual meetings.
  • Annual filing obligations with Companies House and HMRC.
  • Additional cost compared to operating as a sole trader.
  • Restrictions on withdrawing money from the business (see below).
  • Company details must be presented on official documents and website (see below).

Withdrawing money from a company

Although a company is a separate legal person from its directors and shareholders there are restrictions on how money can be taken out of the business.  As a director of a company there are only three ways to take cash out of the business:

  • Salary
  • Dividends to shareholders
  • Directors’ loans

Companies must pay National Insurance at the rate applicable to salaries paid under a contract of employment.  Deductions must also be made from the gross salary for National Insurance and Income Tax.  Any salary must be paid under a contract of employment and is subject to the National Minimum Wage.  Directors are not able to invoice their own company for their personal time spent working on the company.

Dividends are paid at a rate agreed by the company for each class of share.  If a director is also a shareholder any dividend paid to shareholders will be paid to the director.  Dividends can only be paid out of retained profits (after tax).  If you want to pay dividends, you must have financial records to show that there are sufficient retained profits in the company.

Any money paid to a director that isn’t salary or a dividend must be considered a director’s loan.  Full records of directors’ loans must be kept and depending on when they are repaid there are different rules on how they are treated for tax purposes.

Business stationery

All companies are required to use their official company name with any business correspondence.  The company name must be stated on all stationery including Limited or Ltd at the end to signal that it has limited liability.

All business letters / emails, order forms websites must include the following information:

  • Place of registration               e.g. Scotland
  • Registered number                 e.g. SC433814
  • Registered office address      e.g. 4 Dolphin Road, Glasgow G41 4LE

For more information on forming a company for your business or keeping financial records please contact member of the Chartered Institute of Management Accountants using the link to The Team above.

contact@alterledger.co.uk

Useful links

Companies House: http://www.companieshouse.gov.uk/promotional/busStationery.shtml
gov.uk: https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company
gov.uk: https://www.gov.uk/national-minimum-wage-rates
HMRC http://www.hmrc.gov.uk/ct/managing/director-loan.htm
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