Difference between private limited and public limited companies

Difference between private limited and public limited companies

When planning to register a company in the United Kingdom, Republic of Ireland or other Commonwealth countries, founders make a key decision on a type of company to incorporate. There are various company types in these jurisdictions, but most popular forms among limited liability entities (LTD) are: public limited company and private limited company. These two forms have a huge deference between each other. Thus, it is essential for the founders to define business goals and think about corporate structure of the future company.

What are the main characteristics of private limited companies?

Private limited companies are perfect for two or several members. The members’ liability is limited to the ownership stack and personal assets of members are not used in case of a company’s debt or liability. The number of required members and directors is less than in public limited companies. The number of shareholders can be limited, whilst public limited companies are traded publicly and its shares can be offered to unlimited number of members.

The operation costs for private limited companies are lower. In comparison to public limited companies, private companies have a lower minimum share capital. Annual compulsory audit is not required for private limited companies unless otherwise prescribed by applicable laws (for example, an audit is required if a company’s income exceeds certain amount per year).

How public limited companies (PLC) differ from private limited companies?

The shares of private limited companies cannot be publicly traded which is different from public limited companies. Public limited companies can be listed on a stock exchange market. After public limited company is incorporated, it has to obtain a trading certificate and issue a prospectus describing company plans, its management board and other details to the public to offer shares. Besides, a copy of financial statements and reports have to be revealed publicly on an annual and quarter basis.

That said, private limited companies are suitable for small and middle-sized businesses, while public limited companies require more operation expenses. Private limited companies are set up between families or close partners as they can be sure that its shares will be offered to existing shareholders before they are sold and hence the company will not go to general public.

The ability to increase the number of shareholders and sell the shares on the stock exchange make the public limited company more attractive in terms of obtaining additional finances. It all gives an opportunity to grow to a large size company.

Is it possible to convert private limited company to public limited company?

It is important to note that a private limited company can be converted to a public limited company with a consent of shareholders and vice versa. In certain circumstances (usually once a number of members exceed specific amount) private limited company is required to be converted to PLC.

What PLC and LTD stand for?

The abbreviation “PLC” or “plc” is widely and officially used for public limited companies in the United Kingdom. As mentioned, it is used for UK companies as well as for companies incorporated in other Commonwealth jurisdictions. “PLC” or “public limited company” goes at the end of the company name forming a full legal name of such entity.

PLC should be distinguished from “LTD”. The latter refers to an indication that a company is incorporated in a form of limited company, in which liability of its members is limited to their shares. LTD is a broader definition, as it comprises both public limited companies and private limited companies while in some jurisdictions it refers to limited liability companies, private companies limited by guarantee, private companies limited by shares. Due to language differences, it is possible to meet such abbreviations as “Lda”, “Ltda” placed at the end of a company name.

Depending on jurisdiction, rights, obligations and responsibilities of such companies, its members, directors may differ significantly. The main feature of limited companies is that the liability of members is limited to the amount of the shares held by them.

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