What it means
A public limited company is a separate legal entity from its owners. The shareholders own it, but if it fails they can lose only what they paid for their shares.
This limited liability encourages people to invest, because their personal assets are protected. The word public means the company is allowed to offer its shares to the general public, not that it is owned by the government.
It does not mean that the shares are actually listed on a stock exchange, as some plcs are not. A company that is listed is quoted, while a plc is a legal form.
A plc faces tougher rules than a private limited company, which usually ends in Ltd. It must meet a minimum share capital requirement, normally hold annual general meetings, file detailed accounts and have the right officers.
These rules are designed to protect investors who cannot see what happens inside the business. Many large businesses choose the plc form because it allows them to raise money from many investors.
A company that wants to float on a stock exchange must first become a plc. Others convert to plc status to improve their image or to make it easier to bring in outside investment.
For managers, being a plc brings extra duties. Directors must follow corporate governance rules, publish audited accounts and treat shareholders fairly, and big decisions may need shareholder approval.
Penalties for breaking the rules can fall on the company and on individual directors. Readers who deal with companies from the United States should note the differences in names.
A US corporation usually ends with Inc. or Corp., and the equivalent of a private company is often an LLC. The legal rules vary by country, so a plc in one place is not identical to a similar form elsewhere.
In practice
Real-world examples.
Example
A family-owned engineering firm grows rapidly and wants to list on a stock exchange. It converts from a private limited company to a plc and appoints more independent directors to its board. The change allows it to sell shares to new investors, and the family keeps a controlling stake.
Example
A supplier checks a new customer's name and sees that it ends with plc. It looks up the company's published accounts to see whether it is profitable and how much debt it carries. The supplier uses the information to set a sensible credit limit, and it reviews the accounts again each year.
Example
A small plc has not listed its shares but uses the plc form to attract a group of private investors. It is required to hold an annual meeting and publish its accounts. The founders accept the extra cost in exchange for credibility.
Case study
Seen in the real world.
Marlowe and Finch plc is a fictional company, and this story is illustrative. It began as a private limited company making garden tools and decided to raise $15,000,000 to open a new factory, after several years of steady growth in sales.
The directors converted the business to a plc and listed 30% of its shares. At an agreed price of $5.00 a share, the company issued 3,000,000 shares to raise 3,000,000 x $5.00 = $15,000,000. The new status required audited accounts, an annual general meeting and clear reports to shareholders.
The extra cost of compliance was about $200,000 a year, but the capital allowed the company to double its output. The founders kept a majority holding and a seat on the board. The company also found that its larger profile made banks and suppliers more willing to offer better terms. The illustrative lesson is that the plc form brings access to capital in return for greater scrutiny and cost.
Watch out
Common mistakes.
- Assuming every plc is listed on a stock exchange, when some are not and simply have the right to offer shares to the public.
- Thinking that public means state-owned, when it refers to the ability to offer shares to the public and has nothing to do with government ownership.
- Believing limited liability protects directors from all personal responsibility, when they can still be held liable for wrongdoing, fraud or breach of their duties.
Questions
People also ask.
What is the difference between plc and Ltd?
A plc may offer shares to the public and faces stricter rules on capital, meetings and reporting, while a Ltd is private and cannot offer shares to the public.
Where is the plc form used?
It is used in the United Kingdom, Ireland and a number of other countries with similar company law, and local rules decide the exact requirements.
Is a plc the same as a US corporation?
They are similar in that both limit liability and can raise money from the public, but the laws differ.
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