Business and organisational characteristics - Public limited companies

Learning Outcomes

This article explains the key characteristics of public limited companies (PLCs) relevant for the SQE1 assessment. It focuses on the formation requirements, share capital rules, governance structures, and main differences between private and public companies. After reading this article, you should be able to identify the features specific to PLCs and distinguish them from private limited companies, applying this knowledge to typical SQE1 problem scenarios involving business structures.

SQE1 Syllabus

For SQE1, you need a practical understanding of different business structures, including the distinct features of unlisted public limited companies compared to private companies. You may be asked to identify the implications of operating as a PLC or advise on compliance with specific PLC requirements.

As you work through this article, remember to pay particular attention in your revision to:

  • the definition and key characteristics of a public limited company (PLC)
  • the requirements for forming or re-registering as a PLC, including minimum share capital
  • the rules regarding offering shares to the public
  • key governance differences compared to private companies (directors, company secretary)
  • the concept of a trading certificate.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. What is the minimum allotted share capital required for a public limited company in the UK?
    1. £1
    2. £12,500
    3. £50,000
    4. £100,000
  2. Which of the following must a public limited company possess before it can commence trading or borrow money?
    1. A certificate of incorporation
    2. A debenture
    3. A trading certificate
    4. A shareholders' resolution

  3. True or false? A private limited company can offer its shares for sale to the general public.

  4. What is the minimum number of directors required for a public limited company?
    1. One
    2. Two
    3. Three
    4. Five

Introduction

While private limited companies are the most common corporate structure, it is also necessary for SQE1 purposes to understand the characteristics of public limited companies (PLCs), particularly unlisted PLCs. A PLC differs from a private company in several key respects, notably concerning share capital, the ability to offer shares to the public, and certain governance requirements. Understanding these differences is essential for advising clients on the appropriate company structure and ensuring compliance.

Definition and Key Features

A public limited company is defined under s 4(2) of the Companies Act 2006 (CA 2006) as a limited company (limited by shares) whose certificate of incorporation states that it is a public company.

Key Term: Public limited company (PLC)
A company limited by shares whose certificate of incorporation states it is a public company, registered as such under the CA 2006. Its name must end with 'public limited company' or 'plc'.

Key features distinguishing a PLC from a private limited company include:

  • Name: Must end with 'public limited company' or 'plc' (or Welsh equivalents) (s 58(1) CA 2006). Private companies use 'Limited' or 'Ltd' (s 59(1) CA 2006).
  • Share Offerings: PLCs can offer their shares to the public (subject to regulatory requirements). Private companies are strictly prohibited from offering shares to the public (s 755 CA 2006).
  • Minimum Capital: PLCs are subject to minimum capital requirements. Private companies are not.
  • Governance: PLCs have stricter governance requirements, including needing more directors and a qualified company secretary.

Share Capital Requirements

A significant difference lies in the share capital rules. Unlike private companies which have no minimum capital requirement, a PLC must meet specific thresholds.

Key Term: Minimum capital requirement
The statutory minimum value of allotted share capital that a public limited company must have before it can commence business or borrow money.

The key requirements are:

  • The nominal value of the company's allotted share capital must be at least the 'authorised minimum', currently £50,000 (ss 761 and 763 CA 2006).
  • Each allotted share must be paid up to at least one-quarter of its nominal value and the whole of any premium (s 586 CA 2006).

Worked Example 1.1

A PLC is incorporated with an allotted share capital consisting of 50,000 ordinary shares with a nominal value of £1 each. How much must be paid up on these shares before the company can obtain a trading certificate?

Answer: At least £12,500 must be paid up. This is calculated as one-quarter of the total nominal value (£50,000 / 4 = £12,500). If the shares were issued at a premium (e.g., £1.50 per share), the entire premium (£25,000 in this example) would also need to be paid up in addition to the £12,500.

Trading Certificate

Before a PLC that is newly incorporated as such can commence business or exercise any borrowing powers, it must obtain a trading certificate from the Registrar of Companies (s 761 CA 2006).

Key Term: Trading certificate
A certificate issued by the Registrar of Companies confirming that a public limited company has met the minimum share capital requirements and is authorised to commence business and borrow.

The Registrar will issue the trading certificate only when satisfied that the minimum allotted share capital requirement (£50,000, with shares at least one-quarter paid up) has been met. Trading without this certificate can result in personal liability for directors (s 767 CA 2006) and is a criminal offence.

Exam Warning

Remember that the requirement for a trading certificate applies to companies initially incorporated as PLCs. A private company that re-registers as a PLC does not need a separate trading certificate, as Companies House will not permit re-registration unless the capital requirements are already met.

Governance Differences

PLCs face more stringent governance rules than private companies:

  • Directors: A PLC must have at least two directors (s 154(2) CA 2006). A private company requires only one (s 154(1) CA 2006).
  • Company Secretary: A PLC must appoint a company secretary (s 271 CA 2006). Private companies are not legally required to have one (s 270 CA 2006). Furthermore, the secretary of a PLC must meet certain qualification requirements outlined in s 273 CA 2006 (e.g., being a member of certain professional bodies or having held the position in a PLC previously). No such qualifications are mandated for secretaries of private companies (if appointed).

Worked Example 1.2

Innovate Solutions Ltd, a private company, wishes to re-register as a PLC. It currently has one director, Anya, who is also the sole shareholder. The company secretary is Ben, who has no formal qualifications but has acted efficiently for five years. Advise Innovate Solutions Ltd on the necessary changes regarding its officers.

Answer: To re-register as a PLC, the company must appoint at least one additional director, as PLCs require a minimum of two directors. Furthermore, Ben may not meet the qualification requirements for a PLC company secretary under s 273 CA 2006. The company must ensure its appointed secretary meets these statutory requirements upon re-registration.

Offering Shares to the Public

The primary advantage of being a PLC is the ability to raise capital by offering shares to the public. Private companies are explicitly prohibited from doing this (s 755 CA 2006).

Offering shares to the public is a complex and highly regulated process, involving compliance with legislation such as the Financial Services and Markets Act 2000 (FSMA) and associated regulations (like the Prospectus Regulation Rules). This typically requires issuing a prospectus, a detailed document providing information about the company and the share offer, which usually needs approval from the Financial Conduct Authority (FCA).

Revision Tip

For SQE1, you primarily need to know the distinction – that PLCs can offer shares publicly while private companies cannot. Detailed knowledge of the regulations governing public share offers (prospectus rules, FSMA) is generally beyond the scope of the SQE1 Business Law and Practice syllabus, which focuses more on the characteristics of unlisted PLCs. However, be aware that the ability to access public capital markets is the defining reason for choosing the PLC structure.

Key Point Checklist

This article has covered the following key knowledge points:

  • A public limited company (PLC) must have 'public limited company' or 'plc' in its name.
  • PLCs can offer shares to the public; private companies cannot.
  • PLCs must have a minimum allotted share capital of £50,000, with shares paid up to at least one-quarter of their nominal value (plus any premium).
  • A newly incorporated PLC requires a trading certificate before commencing business.
  • PLCs must have at least two directors.
  • PLCs must appoint a company secretary who meets statutory qualification requirements.
  • PLCs are generally subject to more stringent regulation and disclosure requirements than private companies.

Key Terms and Concepts

  • Public limited company (PLC)
  • Minimum capital requirement
  • Trading certificate
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