Business and organisational characteristics - Public limited...

Learning Outcomes

This article explains the key characteristics and regulatory requirements of public limited companies (PLCs) for the SQE1 Business Law and Practice assessment, including:

• the statutory definition of a PLC and how it differs in status and capacity from a private limited company;
• the minimum share capital rules, including the authorised minimum, paid‑up capital thresholds and treatment of non‑cash consideration on allotment;
• the need for, and legal consequences of trading without, a trading certificate for newly incorporated PLCs, and the distinct position on re‑registration from private company to PLC;
• core governance requirements, such as the minimum number of directors, qualifications of the company secretary, AGM obligations, prohibition on written resolutions and short‑notice thresholds for general meetings;
• the stricter accounts, audit and filing regime applicable to PLCs compared with private companies;
• directors’ authority to allot shares in a PLC, interaction with statutory pre‑emption rights and the resolutions needed to disapply those rights;
• the ability of PLCs to offer shares to the public, contrasted with the prohibition on public offers by private companies, and how this distinction features in typical SQE1 multiple‑choice and scenario-based questions.

SQE1 Syllabus

For SQE1, you are required to understand different business structures, including the distinct features of unlisted public limited companies compared to private companies, and to identify the implications of operating as a PLC or advise on compliance with specific PLC requirements, with a focus on the following syllabus points:

• 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
• the requirement for a PLC to hold an annual general meeting (AGM) and the prohibition on written resolutions
• the higher short notice threshold for PLC general meetings (95%) compared with private companies (90%)
• accounts and audit timelines that apply to PLCs (including mandatory audit and six-month filing deadline)
• directors’ authority to allot shares in a PLC (s 551 CA 2006) and interaction with statutory pre-emption rights.

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.

PLCs are companies limited by shares (or limited by guarantee with a share capital) whose certificate of incorporation states they are public companies. They are permitted to offer shares to the public, but public offers are subject to financial services regulation. PLCs are more heavily regulated than private companies in relation to both governance and capital rules. Even when not listed on a stock exchange, they must meet the statutory “authorised minimum” for allotted share capital, appoint at least two directors and a suitably qualified company secretary, and comply with public company meeting and reporting requirements (including holding an AGM and filing audited accounts within six months of the period end). A trading certificate is an additional early compliance step for companies initially incorporated as PLCs.

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.

In addition:

• Public company scope: There is no such thing as an unlimited public company; a public company must be limited (s 4(2) CA 2006).
• Articles: PLCs either adopt public company model articles (Sch 3, Companies (Model Articles) Regulations 2008) or bespoke articles appropriate for a public company.
• AGM requirement: Public companies must hold an annual general meeting (s 336 CA 2006). Private companies do not have to hold an AGM.
• Written resolutions: Public companies cannot use written resolutions (s 288 CA 2006). Key decisions must be passed in general meeting.
• Short notice: The consent threshold to hold a PLC general meeting on short notice is a majority in number holding at least 95% of the voting rights (s 307(5)–(6) CA 2006). For private companies, it is 90%.
• Accounts and audit: Public companies must file accounts within six months of the accounting reference date (s 442 CA 2006) and must be audited. Audit exemptions available to small and micro entities do not apply to public companies.

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).

Key Term: Authorised minimum
The minimum nominal value of a PLC’s allotted share capital required under CA 2006. It is currently £50,000 and may be stated in sterling (or the euro equivalent). The amount can be amended by regulations, so always check the current figure.

Two points often tested in practice:

• Allotment vs issue: A person acquires the unconditional right to be entered on the register of members upon allotment (s 558 CA 2006), and shares are “issued” once the person is entered on the register.
• Non‑cash consideration: Where shares are allotted for non‑cash consideration, robust valuation is necessary. In the context of re‑registration to PLC, Companies House will require a valuation report for any non‑cash allotments since the last balance sheet date (see re‑registration procedure below).

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. In practice, the company applies on form SH50 with evidence of paid-up capital and any supporting documents requested by the Registrar.

Trading without this certificate can result in personal liability for directors (s 767 CA 2006) and is a criminal offence. In broad terms, acting as a PLC without the certificate does not usually invalidate the company’s contracts, but directors may be exposed to joint and several liability for loss flowing from premature trading or borrowing. This risk is why advisors stress obtaining the certificate before taking any material steps in commerce or finance.

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.

Re‑registration to PLC is made on form RR01 with a special resolution approving re‑registration and amendments to the name and articles suitable for a public company. The application must include a balance sheet, an auditors’ statement, and a valuation report where shares have been allotted for non‑cash consideration since the balance sheet date. Companies House will issue a new certificate of incorporation stating public company status (s 96 CA 2006).

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.

Worked Example 1.3

A newly incorporated PLC, before obtaining its trading certificate, signs a large supply contract and enters into a short-term loan to fund initial stock purchases. What compliance and liability issues arise?

Answer:
The PLC should not commence business or borrow until the trading certificate is issued (s 761 CA 2006). Trading or borrowing prematurely is a criminal offence and may expose directors to personal liability under s 767 CA 2006. Practically, the company should pause performance and urgently complete the SH50 process with evidence of paid-up capital; lenders may seek director guarantees or insist on the trading certificate before advancing funds.

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).

Key Term: Qualified company secretary
For a PLC, the company secretary must meet s 273 CA 2006 criteria, typically by professional qualification (for example, membership of the Chartered Governance Institute) or by prior service as secretary of a PLC, or by holding other prescribed qualifications or experience.

Additional governance distinctions to keep in mind:

• AGM: Public companies must hold an annual general meeting (s 336 CA 2006).

Key Term: Annual general meeting (AGM)
A compulsory yearly meeting for PLCs at which members consider routine business (e.g., receiving accounts, appointing auditors, director appointments/removals). Private companies are not required to hold an AGM.

• Written resolutions: Public companies cannot pass shareholders’ resolutions by written resolution (s 288 CA 2006).
• Short notice: To hold a general meeting on short notice, a PLC requires consent of a majority in number holding at least 95% of voting rights (s 307(5)–(6) CA 2006). This is higher than the 90% threshold for private companies.
• Accounts and audit: PLC accounts must be audited and filed within six months of the accounting reference date (s 442 CA 2006). Audit exemptions for small/micro companies do not apply to public companies.
• Director composition rules: As with all companies, at least one director must be a natural person (s 155 CA 2006), and directors must be at least 16 years old (s 157 CA 2006).
• Authority to allot shares: Directors of a PLC require authority from the members to allot shares (s 551 CA 2006). This authority must state a maximum amount and last no more than five years, and it interacts with pre‑emption rights (s 561 CA 2006). The automatic authority in s 550 applies only to certain private companies.

Worked Example 1.4

A PLC wants to allot new ordinary shares to an external investor to fund growth. The company has not previously given directors a general authority to allot. What approvals are required, and how do pre‑emption rights apply?

Answer:
The directors need shareholder authority under s 551 CA 2006 (by ordinary resolution), setting a maximum allotment amount and duration (up to five years). As the allotment concerns equity securities, statutory pre‑emption rights (s 561 CA 2006) apply unless disapplied. The PLC can disapply pre‑emption rights by special resolution—either generally for the s 551 authority period (s 570) or for a specific allotment (s 571), in which case the directors must issue a written statement explaining and justifying the disapplication. Without disapplication, the PLC must first offer new shares pro rata to existing ordinary shareholders (s 562).

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). Distinguish between a public offer and a listing: unlisted PLCs can make public offers but cannot have their securities admitted to the official list unless they comply with FSMA Part VI and the FCA’s Listing Rules. Private companies cannot apply for official listing (FSMA s 75 and related regulations).

Key Term: Offer to the public
An invitation to the public (or a section of the public) to subscribe for or purchase shares. Private companies are prohibited from making public offers (s 755 CA 2006). Targeted offers to connected persons or limited categories can fall within statutory exceptions (s 756 CA 2006).

Two practical distinctions help with advisory scenarios:

• Targeted offers: s 756 CA 2006 carves out certain non‑public offers (for example, to existing members or to a limited circle). These are commonly used by private companies to raise capital privately.
• Listing vs offering: A PLC may offer shares without being listed, but admission to trading on regulated markets requires separate compliance under FSMA and FCA rules (beyond SQE1 scope).

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.

Worked Example 1.5

A private company circulates a leaflet to the general public inviting subscriptions for its shares. Is this compliant? Would the position differ if the company were a PLC?

Answer:
The private company breaches s 755 CA 2006 by offering shares to the public. A PLC may offer shares to the public, but the offer would be subject to FSMA and prospectus regulation requirements. In practice, the PLC would assess whether a prospectus is required and seek FCA approval where applicable before making the offer.

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 must hold an annual general meeting and cannot use written resolutions.
• PLC general meetings held on short notice require consent of a majority in number holding at least 95% of voting rights.
• PLC accounts must be audited and filed within six months of the end of the accounting reference period.
• Directors of a PLC need shareholder authority to allot shares (s 551 CA 2006), and statutory pre-emption rights must be respected or properly disapplied.
• A private company re-registering as a PLC does not require a separate trading certificate; compliance is checked on re-registration.

Key Terms and Concepts

• Public limited company (PLC)
• Minimum capital requirement
• Trading certificate
• Authorised minimum
• Annual general meeting (AGM)
• Qualified company secretary
• Offer to the public