All businesses listed on the stock market are PLCs, although it’s also possible for a PLC to not be listed. We’ve set out the basics for what makes a public limited company and how it differs from other types of business.
Once a business becomes a PLC, it is seen as a separate legal entity. That means there are different taxes to pay – and the owners aren’t personally liable for debts. A PLC must also meet a number of legal obligations that a sole trader or owners of a partnership wouldn’t need to worry about.
For example, it has to make its accounts available for the public to view. It has to host an annual general meeting (AGM) and shareholders may have the right to vote on certain decisions about the future of the company. In certain contexts, business owners are also bound to make decisions in the best interests of shareholders.
The process of becoming a PLC is called an initial public offering (IPO). The process is lengthy, complicated and expensive, but can ultimately be financially viable. Selling shares to the public can be one of the most effective ways of raising capital for your business.
Each company that goes public will have “PLC” as a suffix attached to the business name.
How to create a public limited company
It will require an experienced team of financial and legal experts to create a PLC.
You’ll need at least 7 board members and three directors. You must issue at least £50,000 worth of shares to the public.
The initial price of your shares, and how much equity you’ll give away during your IPO, must be decided.
Lawyers will check your accounts for irregularities, and these will have to be revealed to the public too. The business will have to meet a stock market’s specific regulations in order to be listed.
Once your business is judged to have passed all these regulatory hurdles, you can set a launch date for when shares will become available for the public to buy.
Your share price – and therefore the value of your company – will then fluctuate depending on supply and demand.
Alternatives to a public limited company
- Sole proprietorship. A business owned by one person. It is not a separate legal entity. The owner is therefore taxed as an individual and is personally responsible for any business debts.
- Partnership. A business owned by two or more people. These owners are still taxed as individuals and remain personally responsible for business debts incurred.
- Private limited company. This type of business is a separate legal entity. It is taxed the same as a PLC and owners aren’t personally liable for debts. The key difference is that no equity is offered to the public.
What are the pros and cons of launching a public limited company?
Pros
- A great way of raising additional capital for future growth.
- There can be tax advantages.
- Business owners aren’t personally liable for debts.
- Going public dilutes your business risk.
Cons
- Expensive and time-consuming.
- More regulations to meet.
- You’re giving away equity.
- You’ll often have to consider shareholders’ interests when making business decisions.
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