Private vs public companies: Similarities and differences

The vast majority of companies in the UK are incorporated as private limited companies. However, some companies choose to register as public limited companies (PLCs) instead or even convert their private companies into public companies later on.

Below, we explore some of the similarities and differences between private and public companies, along with the benefits and drawbacks of each business structure.

What do private and public companies have in common?

Private limited companies and PLCs are distinct legal entities separate from their owners. Both can hold assets, enter into contracts, sue, and be sued. The shareholders’ liability to the company is also limited to the unpaid issue price of the shares they hold.

Furthermore, they are both incorporated companies and must be registered with Companies House. This involves creating a memorandum and articles of association and completing an application form.

Can I sell shares in a private limited company?

What does it mean when a company is limited by shares?

What does limited liability mean?

There are also various common duties that apply to private and public companies, such as annual filing requirements (i.e., confirmation statements, annual accounts, and Company Tax Returns), and both are governed by the Companies Act 2006.

Differences between a public and private company

The big difference is that public companies can sell their shares to the general public via a stock exchange, whilst private companies can’t. Other distinctions between private and public companies include:

• Minimum number of directors – private companies only need one director, whereas PLCs require at least two
• PLCs must apply for a trading certificate before they can begin trading or borrowing. The certificate confirms they have a minimum issued share capital of £50,000, with at least one-quarter of the nominal value and any premium being paid up in full. These requirements don’t apply to private companies, who can trade immediately after incorporation and have no real share capital requirements (other than having at least one share in issue at all times).
• Public companies are not allowed to buy back their own shares out of capital, while private companies can
• Company secretaries are optional in private companies. Meanwhile, PLCs are legally required to appoint a qualified secretary at all times.
• PLCs are obliged to hold Annual General Meetings (AGMs). These are optional for private companies.
• Private companies have nine months after the end of each accounting reference period to submit their accounts to Companies House, whereas public companies have six months.

The advantages and disadvantages of operating as a public limited company

Now that we’ve explored their similarities and differences, let’s examine why a private company may wish to convert to a PLC.

Advantages

• The most obvious advantage is the financial benefit of raising capital. PLCs can use the capital to finance acquisitions, expansion, research and development (R&D), or debt repayment.
• PLCs can seem more credible and prestigious due to their higher regulatory requirements, share capital requirements, etc.
• If the company lists on a stock exchange, it can reap significant profits for existing shareholders if they decide to ‘cash out’ (i.e. use it as an exit strategy) as well as generate publicity for the company and provide an indisputable valuation of the company on an ongoing basis
• Publicly traded shares are generally worth more than private company shares

Disadvantages

• Greater financial contributions are required from the outset. Specifically, because of the minimum share capital requirement of £50,000 (of which a quarter needs to be paid up).
• PLCs are subject to higher regulatory requirements, including in relation to their accounts, the need to have an audit, and host annual general meetings. If the company has shares admitted to a stock exchange, the regulatory requirements will increase even further.
• The existing management team and shareholders can lose control of the company if an investor or group of investors acquires a controlling stake in the business
• Going public and creating an initial public offering (IPO) is expensive and time-consuming

How to change your company structure

If you are looking to re-register a private limited company as a public limited company, part 7 of the Companies Act 2006 provides the mechanism for changing the legal structure. The primary requirement is the passing of a special resolution to approve the conversion (which requires at least a 75% majority vote in favour).

Additionally, the company will need to change its name (so that it ends with either ‘Public Limited Company’ or ‘PLC’), adopt an appropriate set of articles of association for a public limited company, meet the minimum share capital requirements, and submit the form RR01.

It is also possible to re-register a public limited company into a private limited company through a similar process. For this, you’ll need the form RR02 instead.

Is a private or public company best for you?

Choosing a legal structure for your business depends on your circumstances and preferences regarding how you’d like your company to operate. We hope this blog has clarified the key similarities and differences between private and public companies and helped make your decision easier. 

If you’re ready to incorporate, look no further than Quality Company Formations, where we have the ideal formation package for every company structure. Simply start by choosing your ideal company name on the QCF website.

If you need assistance with changing your legal structure, contact our team of experts on 020 3908 0044.

Alternatively, please leave us a comment below if you have any questions. Don’t forget to take a look at the QCF blog for more articles like this.