{"id":7423,"date":"2020-03-21T09:16:51","date_gmt":"2020-03-21T09:16:51","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=7423"},"modified":"2024-01-30T11:00:38","modified_gmt":"2024-01-30T11:00:38","slug":"difference-between-private-and-public-companies","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/difference-between-private-and-public-companies\/","title":{"rendered":"What is the difference between private and public companies?"},"content":{"rendered":"<p>The vast majority of incorporated businesses are private limited companies. Once they have achieved a certain level of business growth, some of them decide to convert to public limited companies (PLCs). This is often referred to as &#8216;going public.&#8217; Below, we explore some of the similarities and differences between private and public companies, along with the benefits and drawbacks of each business structure.<\/p>\n<h3>What do private and public companies have in common?<\/h3>\n<p>Both private limited companies and PLCs are distinct legal entities. They can own assets and property, and they can be held liable for debts. Both of these business structures limit the liability of shareholders to the value of their shares.<\/p>\n<p>Furthermore, they are both incorporated companies and must be registered with Companies House, which involves creating a <a href=\"https:\/\/www.gov.uk\/limited-company-formation\/memorandum-and-articles-of-association\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">memorandum and articles of association<\/a>, along with certain other formalities.<\/p>\n<p>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 <a href=\"http:\/\/www.legislation.gov.uk\/ukpga\/2006\/46\/contents\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">Companies Act 2006<\/a>.<\/p>\n<h3>What are the main differences between PLCs and private companies?<\/h3>\n<p>The primary reason for choosing to convert a private limited company to a PLC is the ability of the latter to offer their shares for sale to the general public. In effect, this means that public limited companies can list their shares on a stock exchange.<\/p>\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/formation-packages\/#plc\" class=\"related related-buy\" data-wpel-link=\"internal\"><span class=\"related-title related-buy-title\">Set up a PLC with Quality Company Formations<\/span><\/a>\n        \n<p>Other distinctions between private and public companies include:<\/p>\n<ul>\n<li>Minimum number of directors &#8211; private companies only need one director, whereas two are required for public companies.<\/li>\n<li>PLCs must apply for a trading certificate that confirms they have a minimum issued share capital of \u00a350,000, with at least one quarter of the nominal value and any premium being paid up in full; there are no such requirements for private limited companies.<\/li>\n<li>Public limited companies are not allowed to buy back their own shares out of capital; private companies are permitted.<\/li>\n<li>Private companies do not have to appoint a company secretary; PLCs must have a company secretary at all times.<\/li>\n<li>PLCs are obliged to hold Annual General Meetings (AGMs); these are optional for private companies.<\/li>\n<li>Private companies have 9 months to submit their accounts to Companies House after the end of each accounting reference period, whereas public companies have only 6 months.<\/li>\n<\/ul>\n<h3>The advantages and disadvantages of going public<\/h3>\n<h4>Advantages<\/h4>\n<ul>\n<li>The financial benefit in the form of raising capital is the most obvious advantage. Capital can be utilised to finance acquisitions, expansion, research and development (R&amp;D), or to pay off debt.<\/li>\n<li>Going public and listing shares on a stock exchange can also reap significant profits for existing shareholders if they decide to \u2018cash out\u2019, i.e. use it as an exit strategy.<\/li>\n<li>Initial public offerings (IPOs) can generate a good amount of publicity and prestige for companies &#8211; increasing public awareness which may lead to an enhanced market share.<\/li>\n<li>Company stock in the form of stock options can be offered to employees and contractors as a significant form of compensation.<\/li>\n<li>The public market provides an indisputable valuation of the company on an ongoing basis.<\/li>\n<li>Publicly traded shares are generally worth more than private company shares.<\/li>\n<\/ul>\n<h4>Disadvantages<\/h4>\n<ul>\n<li>Going public and creating an IPO (initial public offering) is an expensive and time-consuming matter.<\/li>\n<li>There are many more rules and regulations, with periodic reports and proxy statements, as well as audited accounts that must be filed.<\/li>\n<li>A PLC has less autonomy than a private company, and management may lose a certain amount of freedom to act without restriction.<\/li>\n<li>A public company has far greater disclosure requirements than a private company, which means it has to provide information on a regular basis pertaining to strategy, financial results, salaries, etc.<\/li>\n<li>In general terms, the management costs of a PLC are more expensive than a private company, due to the increased reporting requirements to regulatory agencies.<\/li>\n<li>The existing management team can lose control of the company if an investor or group of investors acquires a controlling stake in the business.<\/li>\n<\/ul>\n<h3>What is the process for converting from a private company to a PLC?<\/h3>\n<p><a href=\"http:\/\/www.legislation.gov.uk\/ukpga\/2006\/46\/part\/7\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">Part 7 of the Companies Act 2006<\/a> provides for the re-registration of a private limited company as a public limited company, and vice-versa. This involves passing a special resolution and sending the relevant forms (<a href=\"https:\/\/www.gov.uk\/government\/publications\/re-register-your-private-limited-company-to-a-plc-rr01\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">form RR01<\/a> if re-registering as a PLC, or <a href=\"https:\/\/www.gov.uk\/government\/publications\/re-register-your-public-limited-company-as-a-private-company-rr02\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">form RR02<\/a> if re-registering as a private limited company) to Companies House.<\/p>\n"},"excerpt":{"rendered":"<p>The vast majority of incorporated businesses are private limited companies. Once they have achieved a certain level of business growth, some of them decide to convert to public limited companies (PLCs). This is often referred to as &#8216;going public.&#8217; Below, we explore some of the similarities and differences between private and public companies, along with&hellip;<\/p>\n","protected":false},"author":10,"featured_media":7416,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[1231],"tags":[],"class_list":["post-7423","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-company-formation","category-1231","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is the difference between private and public companies?<\/title>\n<meta name=\"description\" content=\"Learn about the differences, and similarities, between private and public companies. We also discuss the benefits and drawbacks of each structure.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/difference-between-private-and-public-companies\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is the difference between private and public companies?\" \/>\n<meta property=\"og:description\" content=\"Learn about the differences, and similarities, between private and public companies. We also discuss the benefits and drawbacks of each structure.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/difference-between-private-and-public-companies\/\" \/>\n<meta property=\"og:site_name\" content=\"Quality Formations Blog\" \/>\n<meta property=\"article:published_time\" content=\"2020-03-21T09:16:51+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-01-30T11:00:38+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2020\/03\/QCF-Private-Public-Image.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1500\" \/>\n\t<meta property=\"og:image:height\" content=\"750\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Nicholas Campion\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Nicholas Campion\" \/>\n\t<meta name=\"twitter:label2\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What is the difference between private and public companies?","description":"Learn about the differences, and similarities, between private and public companies. 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