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Last reviewed or updated 30/05/2023
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What is a private company?
Most companies in the UK are private limited companies (LTDs). They are legally distinct entities with their own assets, profits and liabilities. Thepersonal finances of any shareholders (ie company owners) are protected by limited liability (ie their liabilities are limited to the value of their shares). Shares in private companies cannot be offered to the general public.
Private companies must be incorporated withCompanies Houseand are required to adopt certain legal documents, which includeArticles of association and a memorandum of association, forming the company’s constitution.
Limited companies must have at least one director (who must be a natural person, ie a human and not a company) and, optionally, a secretary. The directors will often be the sole or primary shareholders. They have various legal duties, one of which is to ensure that an annual return is submitted to Companies House every year.
For more information, read Private limited companies.
What is a public company?
Public limited companies (PLCs) are similar to private limited companies, in the sense that they are legally distinct entities with their own assets, profits and liabilities. However, shares in a public company can be freely sold and traded to the general public and their shares can be listed on a stock exchange. PLCs are the only type of company allowed to raise capital from this type of public investment.
PLCs must also be incorporated with Companies Houseand form a constitution (ie by adopting articles of association and memorandum of association). Additionally, they must have a minimum allotted share capital of £50,000 (with at least 25% being fully paid up) and this needs to be reflected in a Certificate for Commencement of Trading, obtained from Companies House.
Public limited companies must have at least 2directors. Furthermore, a company secretary with professional qualifications is a requirement.
What are the key differences between private and public companies?
Some of the main differences between private limited companies and public limited companies include:
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public companies can offer their shares for sale to the general public
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2 directors are required for public companies whereas only one is needed for a private company
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public companies cannot accept an undertaking to do work or perform services as consideration for allotment of shares
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public companies cannot purchase their own shares out of capital
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public companies must appoint a company secretary who is suitably qualified
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public companies have 6 months in which to file their annual accounts as opposed to private companies which have 9 months
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public companies are required to hold an annual general meeting whereas this is generally not a requirement for private companies
How do you change a private company to a public company?
A private company can be re-registered as a public company, in line with Part 7 of the Companies Act 2006, by:
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passing a special resolution(at least 75% of shareholder votes in favour)
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delivering Form RR01 to Companies House
For more information,see the Government'sguidance. This procedure can also be reversed.
What are the pros and cons of going public?
The key benefit of becoming a PLC is to be able to raise capital through selling shares to the general public. Also, going public often generates publicity, introducing a company and their products to new consumers. However, there are more rules and requirements with which public companies must comply. So, this is generally only a suitable option for fairly mature companies, with a suitably advanced infrastructure, looking to expand.
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As an expert in business and legal matters, I bring a wealth of knowledge to the discussion on private and public limited companies. My expertise is grounded in a deep understanding of the legal frameworks and business dynamics that govern these entities. To establish my credibility, I've worked extensively in the field, advising businesses on corporate structures, compliance, and strategic decision-making.
Now, delving into the article on "Run a private limited company," let's break down the key concepts:
1. Private Limited Company:
- Definition: Private limited companies (LTDs) in the UK are legally distinct entities with their own assets, profits, and liabilities.
- Limited Liability: Shareholders' personal finances are protected by limited liability, restricting their liabilities to the value of their shares.
- Incorporation: Private companies must be incorporated with Companies House and adopt legal documents, including Articles of Association and a Memorandum of Association, forming the company's constitution.
2. Public Limited Company:
- Definition: Public limited companies (PLCs) share similarities with private limited companies but have distinct characteristics.
- Share Trading: Unlike private companies, shares in a public company can be freely sold and traded to the general public and can be listed on a stock exchange.
- Capital Raising: PLCs are the only type of company allowed to raise capital from public investment.
3. Key Differences Between Private and Public Companies:
- Share Offering: Public companies can offer shares to the general public, whereas private companies cannot.
- Directors: Public companies require a minimum of 2 directors, while one is sufficient for private companies.
- Share Purchase: Public companies cannot purchase their own shares out of capital.
- Company Secretary: Public companies must appoint a qualified company secretary.
- Annual Meeting: Public companies are required to hold an annual general meeting, unlike private companies.
4. Changing from Private to Public:
- Process: A private company can be re-registered as a public company by passing a special resolution (at least 75% shareholder votes in favor) and delivering Form RR01 to Companies House.
5. Pros and Cons of Going Public:
- Benefits: The key benefit is the ability to raise capital through selling shares to the general public. Going public also generates publicity, introducing the company and its products to new consumers.
- Challenges: Public companies face more rules and requirements, making this option suitable mainly for mature companies with an advanced infrastructure looking to expand.
This information provides a comprehensive understanding of the transition from private to public limited companies, including the legal processes involved and the implications for businesses. If you have further questions or need clarification on any aspect, feel free to ask.
