Definition of Public Limited Companies

by Nicole LaMarco - Updated July 31, 2018
Standing out from the crowd

Beginning with a simple public limited company definition, a public limited liability company, also known as a PLC, is the version of a limited liability company, or LLC, that offers its shares to the public while still limiting its liability. The stock of a public limited company can be acquired in a variety of ways including private acquisition, purchase during an initial public offering and through trading stocks on the stock market.

Tips

  • A public limited company (PLC) is the legal designation of a limited liability company (LLC) that has limited liability and offers shares to the general public.

Public Limited Company Definition

The name “Public Limited Company” is more commonly associated with the British origins of the entity and is commonly used as PLC in the United Kingdom and some Commonwealth countries. Meanwhile, the designations “Ltd.” and “Inc.” are normally used in the United States and other countries around the world. The use of the term “PLC” is typically mandatory and is used as an indication to tell investors and other people dealing with the company that the company is both public and, in most cases, quite large.

A public limited company can be listed on a securities or stock exchange or not. It is very much like any major entity in that it is very strictly regulated and such companies are required to publish their financial documents so that shareholders and general stakeholders can see what the financial health of the company is like. They will also be able to use that information to determine what the true value of the company’s stock is. It is also important to note here that PLCs can run for indefinitely long periods of time. In fact, some PLCs are hundreds of years old. The life of a PLC does not end with the death of any of its shareholders.

The process of forming a public limited company is much like the process of forming any kind of company. To start with, you need a minimum of two people to form the company. You then create the articles of association and the memorandum of association of the company. The most important of these is the memorandum of association, which will set out who the members of the company are and what its starting capital is. These documents will then be filed with the registering body in your jurisdiction and your company will be registered. Your company will be a limited liability company, which means that its shareholders will have a limited liability for its debts and so will the management to some extent.

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When you have a public limited company, you can sell shares in your company to outside investors in a bid to raise capital. If you want your company to be listed on a stock exchange, it will have to be a public limited company and will often need to have one of the suffixes “plc,” “ltd.” or “Inc.” on the ticker symbol. There are also lots of other requirements that must be met for your company to be listed on a host of stock exchanges and for it to maintain its listing on these exchanges. For example, for your public limited company to be listed on the London Stock Exchange, it should have at least £50,000 in authorized share capital. It should also comply with all regulatory requirements, such as those governing the disclosure and filing of financial information.

Consider the London Stock Exchange, for example. All of the companies listed on this exchange are public limited companies by definition. Some public limited company examples include the following:

  • Rolls-Royce, a car company, is listed on the exchange as Rolls-Royce Holdings PLC. 
  • Burberry, a clothing retailer, is listed as Burberry Group PLC. 
  • British Petroleum, an oil company, is listed as BP PLC.

The 100 largest companies that are listed on the London Stock exchange are grouped into a famous index known as the Financial Times-Stock Exchange 100 or the FTSE 100 (pronounced as “Footsie 100”). The companies in this index are pretty much a representation of the economy of the United Kingdom, and the performance of the index as a whole is an indicator of the performance of the UK economy. In the United States, a comparable index is the Dow Jones Index or the Standard and Poor 500 index, also known as the S&P 500.

Note that you are not required by law to list your public limited company on an exchange. In fact, not all public limited companies are listed on stock exchanges. Therefore, the fact that a company is a public limited company does not necessarily mean you can buy the stock of that company on an exchange. What the designation PLC means is that the company meets the filing and regulatory requirements to be a public company. It can, however, choose not to meet the requirements of an exchange that would qualify it for listing on that exchange.

When you choose to start your own company, you have a choice to either incorporate it as a private limited company or as a public limited company. There are numerous advantages and disadvantages to having a public limited company as opposed to a private limited company.

Advantage: Raising Capital Through Public Stock

Raising capital through public stock is perhaps the greatest and most obvious advantage of a public limited company. You can raise capital through the issue of shares to the public. It is especially useful if you can get your company listed on a popular exchange. Since your company can sell shares to any member of the public, you can raise much more capital this way than you would if you were a private limited company. It is also possible that having your company listed on an exchange could attract large institutional investors like mutual funds and hedge funds, which typically invest vast sums of money.

Advantage: Broaden Shareholder Base

When you offer your shares to the public, you get to spread the risk of liabilities that come with ownership of the company to a significant number of shareholders. This makes it possible for the founders of the company and the very earliest investors to sell their shares to the public at a substantial profit and still retain a controlling interest in the company.

When you get your capital from a broad range of different investors, you don’t have to rely on any one of them too much. This is a problem commonly faced by many private companies as they eventually find themselves with just one or two major investors. While it is great to have a venture capitalist or angel investor backing you up with expertise and capital, they may end up wielding a lot of influence on the company which might be an uncomfortable situation for the founders of the company.

Advantage: Financial Opportunities

There is a lot more benefit to having a public limited company than just acquiring vast amounts of share capital. You also find that it is now much easier for your company to acquire other forms of capital.

The fact that your company can meet the stringent requirements of being a public limited company and being listed on a stock exchange will upgrade the creditworthiness of your company and make it easier for the company to offer corporate debt. This could mean your company doesn’t have to give such a high return to investors.

You may also find that lending institutions find it much easier to extend credit to your company, particularly if it is listed on an exchange. You could even negotiate a favorable rate of interest and payment schedule.

Advantage: Opportunity to Grow

When you can raise funds as a public limited company, the only thing stopping you from growing is how you invest those funds. Since you have so much more capital and debt at your disposal, you can pursue new projects, markets and products. You can also invest in capital expenditure, acquire other companies, have a more extensive and robust research and development arm, pay off your debt and grow more organically.

Disadvantage: Regulations Compliance

The legal sphere that governs public limited companies is very stringent indeed. All this is in a bid to protect the shareholders and stakeholders of the company. You must, for example, obtain a trading certificate, have at least two directors and follow some strict rules concerning any money loaned by the company to these directors. You also must have a qualified company secretary, comply with transparency rules, hold annual general meetings and follow many other restrictions concerning your dividends and share capital.

If your company is listed on the exchange, there are even more regulations to follow. These can be pretty demanding, and failure to follow them could mean getting delisted from the exchange.

Disadvantage: Be More Transparent

When you have a limited liability company, whether it is a private one or a public one, a lot of your details will be available to the public. However, the level of publicity is much higher for a public limited company.

You will need to do a lot of things regarding your finances as a public limited company to ensure transparency. You will need to have your accounts audited. You will need to file your accounts and disclose a lot of details about how your business is performing and what its financial position is. This information will not only be available to your shareholders, but also to the general public when they wish to access it. That means you will be exposed to more scrutiny and coverage by the public media.

Disadvantage: Ownership and Control Issues

With a private company, the shareholders tend to be the founders and directors. At the very worst, the major investors are a few venture capitalists or angel investors. This isn’t too bad when you remember that a private company can pretty much choose who it will admit as a shareholder. It has the opportunity to pick shareholders who share the values and long-term vision of the founders and directors. Existing shareholders can also maintain the controlling interest in the company whenever new shares are issued through the use of preemption rights.

It is not the same for a public limited company. Such companies cannot control who decides to buy the company’s shares and who the directors will be accountable to. There is every possibility that the original shareholders and the founders of the company will eventually lose control of the company or have a much harder time pursuing the original vision of the company. It can often become a bit of a power struggle. It can get worse if the largest shareholders are institutional investors, who have a strong influence on the company. They will typically expect the directors to consult them before making major decisions or adopting particular standards or policies since they are investing such large sums of money in the company.

About the Author

Nicole is a business writer with nearly two decades of hands-on and publishing experience. She's been published in several business publications, including The Employment Times, Web Hosting Sun and WOW! Women on Writing. She also studied business in college.

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