A public limited company (PLC) is a well-known business structure, especially for larger organisations that want to attract investors. While PLCs offer plenty of benefits, they also come with challenges. In this guide, we’ll break down what a PLC is, explore its pros and cons, and walk you through the key steps to setting one up.
What is a public limited company?
A public limited company is a type of business that is legally allowed to sell shares to the public on a stock exchange. They usually do this as a way to raise capital. PLCs are regulated under strict legal requirements to ensure transparency and protect investors. To qualify as a PLC in the UK, companies must meet specific conditions, including a minimum share capital of £50,000, of which at least 25% must be paid up before trading begins. Learn more in our guide to what is a public limited company.
Key characteristics of a PLC include:
The ability to raise capital by offering shares to the public
Limited liability for shareholders, meaning they are only responsible for the amount invested in their shares
Greater regulatory obligations compared to private companies.
💡Editor's insight: "Some of the most famous public limited companies in the UK include household names like Tesco Plc, Barclays Plc, Marks & Spencer Group Plc, Royal Mail Plc and Vodafone Group Plc. You'll have noticed, they all have the 'Plc' abbreviation to signify so."
Top 8 advantages of a public limited company
Operating as a public limited company (PLC) comes with significant benefits. Here's why some businesses choose to take the leap:
1. Access to substantial capital
By issuing shares on the stock exchange, PLCs can raise large amounts of money from the public. This capital is essential for funding expansion projects, acquiring new businesses, investing in research and development, and improving operations. Unlike private companies that rely on a limited pool of investors, PLCs have access to a broader market of investors.
2. Enhanced credibility and reputation
Being listed as a PLC on a recognised stock exchange boosts the company’s public image. Investors, customers, and suppliers tend to trust a PLC more because it must meet strict regulatory requirements. This credibility can also attract larger clients and contracts, enhancing the company’s market position.
3. Limited liability for shareholders
A key feature of a PLC is that shareholders are only liable for the amount they have invested in shares. This limited liability encourages more people to invest, as they know their personal assets are protected from company debts.
4. Liquidity for shareholders
Shares in a PLC can be easily bought and sold on the stock exchange. This liquidity makes investing in PLCs attractive to shareholders who may want to convert their holdings into cash quickly. It also helps the company attract investors seeking flexibility.
5. Opportunities for expansion and growth
With access to a wider pool of funds, PLCs are better equipped to pursue growth opportunities. This can include entering new markets, launching new products, or building infrastructure. The ability to raise funds through share offerings allows for rapid expansion compared to private businesses.
6. Attracting skilled employees
PLCs often have the resources to offer competitive salaries, benefits, and stock options to employees. The prestige of working for a well-known company and the opportunity to own shares can help PLCs attract and retain top talent, giving them a competitive edge in the market.
7. Diversified ownership
By selling shares to a wide range of investors, a PLC can spread ownership, reducing the influence of any single shareholder. This diversified ownership often leads to more democratic decision-making and can protect the company from being overly influenced by one dominant party.
8. Business continuity
A PLC is a separate legal entity, meaning it exists independently of its owners or shareholders. This structure ensures that the company can continue operating even if key shareholders leave or sell their shares. This stability is particularly appealing to investors and business partners.
Top 8 disadvantages of a public limited company
While PLCs offer numerous advantages, they also come with significant drawbacks. Below is a round-up of the challenges of operating as a public limited company:
1. Strict regulatory requirements
PLCs are required to meet complex legal and regulatory obligations. They must produce detailed annual financial statements, comply with the UK Corporate Governance Code, and ensure transparency for investors. These requirements involve significant time, money, and effort, especially for companies transitioning from a private structure.
2. Loss of control for founders
Once shares are sold to the public, original owners and founders may lose significant control over the company. Shareholders have voting rights, and major decisions may require their approval. This can make it difficult for founders to steer the company in their desired direction without shareholder consensus.
3. Pressure to deliver
As a publicly listed company, there is constant pressure to meet shareholder expectations and deliver consistent financial results. This short-term focus on profitability can conflict with long-term strategic goals, leading to decisions that prioritise quarterly earnings over sustainable growth.
4. Higher operating costs
Running a PLC involves significant costs beyond those faced by private companies. These expenses include fees for legal compliance, stock exchange listings, annual audits, and investor relations activities. These costs can be a substantial burden, particularly for smaller PLCs.
5. Risk of hostile takeovers
Since shares are traded publicly, a PLC is vulnerable to hostile takeovers. If an acquiring party purchases a majority of the company’s shares, they can gain control, potentially against the wishes of the existing management or board. This risk is particularly high if the company’s shares are undervalued.
6. Increased public and media scrutiny
PLCs operate under the spotlight, with their financial performance and operations constantly analysed by investors, regulators, and the media. Negative publicity or poor financial results can damage the company’s reputation, affecting share prices and market performance.
7. Complex management structure
The scale and scope of a PLC often require a more complex management structure. Managing a large number of shareholders with varying interests can slow down decision-making and lead to internal conflicts. Coordinating between the board, executive team, and shareholders adds an additional layer of complexity.
8. Potential for shareholder conflicts
With a wide pool of investors, there is a greater likelihood of differing opinions on the company’s direction. Shareholder activism, where investors push for changes in management or operations, can create tension and disrupt business activities.
Recap: Pros and cons of a PLC
The benefits of operating as a PLC, such as access to capital and credibility, often appeal to businesses seeking growth and market dominance. However, the challenges of increased scrutiny, potential loss of control, and regulatory demands are significant. Understanding these factors is crucial for any company considering whether to adopt a public limited company structure.
Pros ✅ | Cons ❌ |
|---|---|
Access to large amounts of capital | Strict regulatory requirements |
Limited liability for shareholders | Loss of control for original owners |
Increased credibility and market presence | Risk of hostile takeovers |
Liquidity for shareholders | High operating costs |
What do you need to set up a PLC?
Setting up a public limited company in the UK involves meeting specific requirements and following a series of legal steps. It's a fairly similar process to setting up a private limited company. Here's the breakdown:
Minimum share capital: Under the Companies Act, a PLC must have a minimum issued share capital of £50,000, with at least 25% paid up.
Company name: The company name must end with 'PLC' or 'Public Limited Company' to distinguish it from private entities.
Directors and company secretary: A PLC must have at least two directors and a qualified company secretary. The secretary ensures compliance with corporate governance requirements.
Articles of association and memorandum: A memorandum and articles of association outline the company’s rules and structure. They must be submitted to Companies House during incorporation.
Registered office: The company must have a registered office address in the UK, where legal documents can be delivered.
Initial public offering (IPO): To trade on a stock exchange, a PLC must undergo an IPO, which involves offering shares to the public for the first time. This process requires approval from the Financial Conduct Authority (FCA).
Final thoughts
A public limited company offers opportunities for growth, credibility, and access to substantial capital. However, it also presents challenges like regulatory scrutiny, loss of control, and potential financial pressures.
Carefully weighing the advantages and disadvantages of a PLC is crucial for making an informed decision about whether this structure suits your business needs. If you’re considering setting up or transitioning to a PLC, consulting with legal and financial experts is always recommended to ensure compliance and a successful journey.
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Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.