The different types of company

Private limited company

All companies that are not public companies are defined by law as private. Being a private company is the default position. Private companies can range from a small family company to a subsidiary in a large group that is a substantial trading entity in its own right. Sometimes, they will simply be trading vehicles for one or two individuals who want the benefit of limited liability or the added kudos of trading as a company.

As such, the private company is a very flexible format that can be adapted to fit numerous different requirements. But the one thing that a private company cannot do as a matter of law is offer its shares to the public. Any private company that wants to issue shares to the public must first become a plc or public limited company.

Private companies will, therefore, usually have fewer shareholders than a public company, and there will often be restrictions on the transfer of their shares. Those with a very small number of shareholders, including those that are subsidiaries, might ban all transfers of shares that are not first approved by the board of directors. This allows the board to control who becomes a shareholder and, ultimately, who controls the company.

Companies with a larger shareholder base might have more sophisticated rules that allow the transfer of shares by a shareholder but first require that they are offered to existing shareholders (under ‘preemption provisions’), thereby giving them the opportunity to keep ownership within the existing group and to exclude new shareholders.

Public limited company

If you want to be a public rather than a private company, you must take a number of steps. You will need:

• A name that ends with the words ‘public limited company’ (or the Welsh equivalent); permitted abbreviations are PLC, plc or Plc.
• An issued share capital with a nominal value of at least £50,000 and paid up share capital of at least £12,500 (or the equivalent in euros). You could, for example, issue 50,000 £1 shares, or 250,000 20p shares, each paid up at least to one quarter of its nominal value – 50,000 £1shares paid up as to 25p on each share, or 250,000 20p shares paid up
  as to 5p on each. (There is no equivalent minimum for a private company.)

A public company is subject to more stringent controls than a private one in a number of areas. Some of them are listed below.

• The rules on making loans to directors are more restrictive for all companies in a group where one of the members is a public company.
  
• A public company can purchase or redeem its own shares, but it can only pay for them by using those profits from which dividends can be paid. A private company, on the other hand, has the option of using its capital if distributable profits fall short.
• It is a criminal offence for a public company to give financial assistance for the purchase of its own shares, for example by lending money to someone buying a stake in the company. Since October 2008, there has been no equivalent ban for private companies.
• Many private companies are allowed to prepare abbreviated accounts each year. Public companies, on the other hand, have to prepare and file with Companies House a full set of accounts, and pay the added costs that may involve.
• A public company must have a company secretary and hold an AGM each year; a private company can dispense with both.