Introduction
All business structures are unique. Whether it’s the ownership, legal obligations or liabilities, each structure influences how the business operates and grows. But when it comes to Public Limited Companies (PLC) and Private Limited Companies (LTDs), what sets them apart? How does each structure align with your needs? This article explores the key differences between the two business structures and their implications for you.
What is a Private Limited Company (LTD)?
A private limited company (LTD) is one of the most common business structures, often chosen by small and medium-sized enterprises (SMEs). In an LTD, ownership is restricted to named private individuals, meaning the shares cannot be traded publicly. LTDs operate as a distinct entity to the named directors and shareholders, which means their personal assets are protected from any company debts. If the company faces financial difficulties, shareholders are only liable for the debts up to the equivalent of their investment. In simpler terms, the profits, liabilities and business assets belong to the company.
Examples of UK LTDs
What is a Public Limited Company (PLC)?
Similar to an LTD company, a PLC operates similarly to an LTD in terms of being a distinct legal entity, but there’s a key difference: PLC shares can be bought and sold publicly, and the company is often listed on the stock market. PLCs are able to raise capital through public investment, which gives them a significant advantage when it comes to funding large-scale projects. Moreover, shareholders benefit from limited liability- meaning they cannot be held personally responsible for more than their investment.
In the UK, PLCs must be registered with Companies House and must have a minimum allocated share capital of £50,000, 25% (£12,500) of which must be paid upfront before the company can begin trading. In contracts, they face stricter regulatory requirements such as mandatory publication of audited financial statements.
Examples of UK PLCs
Differences between an LTD and PLC company
Although LTDs and PLCs share similarities, some key differences set them apart.
Advantages and disadvantages
Both business structures have distinct advantages and disadvantages, which are essential to consider before going into business or partnership with either structure.
Private Limited Company (LTD)
Advantages
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Greater Control
Business owners retain full control as the shares are privately held, fostering close relationships with shareholders who are typically aligned on business goals.
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Funding
LTDs benefit from greater flexibility when it comes to accessing investment and borrowing from lenders.
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Limited Liability
Shareholders’ personal assets are protected in the event of the company running into financial difficulties.
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Flexibility
LTDs face fewer restrictions when it comes to making crucial business decisions, allowing for more flexible decision-making.
Disadvantages
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Growth Limitations
Without public investment, securing capital for expansion can be challenging, ultimately halting growth.
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Privacy
While LTDs are private, they must still register with Companies House, making key information such as company directors, shareholders, accounts and key company records available to the public.
Public Limited Company (PLC)
Advantages
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Capital
Easier to raise funds as shares can be sold to the public.
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Growth Opportunities
Easier to fund large-scale growth and expansion through public investment.
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Credibility
Being listed on the stock exchange increased brand recognition, making the business more visible to potential business partners and investors.
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Shared Liquidity
Investors have a clear exit strategy due to the transferability of shares.
Disadvantages
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Higher Set-up Costs
Required to have at least £50,000 of nominal share capital, with a minimum of 25% committed paid upfront.
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Regulations
Must comply with stricter legal and regulatory requirements and undergo public scrutiny, such as publishing audited financial statements.
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Takeover Risk
More vulnerable to hostile takeovers and ownership change if a majority of shares are acquired by a single investor.
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Scruitiny
Required to public financial records and key business details can leave them vulnerable to negative news and public sentiment, affecting stock prices and investor confidence.
How AMLCERT can help
Whether you’re considering a partnership with an LTD or a PLC, understanding the risk is crucial to your business goals. AMLCERT provides real-time data and actionable insights on companies of all sizes and structures. With valuable insights on financial stability, director status and potential risks, you can make more informed decisions as you grow and partner with other businesses.