Company formation - Changing from private to public company

Learning Outcomes

After studying this article, you will be able to explain the legal and procedural requirements for converting a private limited company to a public limited company (PLC) under the Companies Act 2006. You will be able to identify the statutory steps, capital and governance requirements, and the practical implications of re-registration. You will also be able to apply these principles to SQE1-style problem questions.

SQE1 Syllabus

For SQE1, you are required to understand the legal and procedural steps for changing a private company to a public company. In your revision, focus on:

  • the statutory process for re-registering a private company as a public company under the Companies Act 2006
  • the minimum share capital and payment requirements for PLC status
  • the changes to company officers and governance obligations
  • the documentation and shareholder approvals required for re-registration
  • the consequences of non-compliance with the statutory process

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 company to re-register as a public limited company?
  2. Which company officers must a PLC have that a private company is not required to appoint?
  3. What shareholder approval is needed to re-register a private company as a PLC?
  4. What is the effect if a company begins trading as a PLC before obtaining a trading certificate?

Introduction

When a private limited company wishes to become a public limited company (PLC), it must follow a specific statutory process set out in the Companies Act 2006. This change is significant, as a PLC can offer its shares to the public and is subject to stricter legal, capital, and governance requirements. For SQE1, you must be able to explain the legal steps, capital requirements, and practical consequences of re-registering as a PLC.

Legal Framework for Re-registration

A private company can only become a PLC by re-registering as a public company under the Companies Act 2006. This process is not automatic and requires strict compliance with statutory requirements.

Key Term: re-registration
The process by which a private company formally changes its status to a public limited company under the Companies Act 2006.

Statutory Requirements

To re-register as a PLC, a private company must:

  • Pass a special resolution approving the re-registration (at least 75% of votes in favour).
  • Amend its articles of association to comply with PLC requirements.
  • Satisfy the minimum share capital and payment requirements.
  • Appoint the required company officers.
  • Submit the prescribed documents to Companies House.

Key Term: special resolution
A shareholder resolution requiring at least 75% approval, used for major company decisions such as re-registration.

Minimum Share Capital

A PLC must have an allotted share capital of at least £50,000 (or the euro equivalent). At least one-quarter of the nominal value of each share and the whole of any premium must be paid up before the company can obtain a trading certificate and commence business.

Key Term: minimum share capital
The statutory minimum amount of allotted share capital (£50,000) required for a company to re-register as a PLC.

Company Officers

A PLC must have at least two directors and a qualified company secretary. At least one director must be a natural person. The company secretary must have the required knowledge and experience or relevant professional qualifications.

Key Term: company secretary
An officer responsible for ensuring the company complies with statutory and regulatory requirements. A PLC must have a qualified company secretary.

Articles of Association

The company must amend its articles to remove any restrictions incompatible with PLC status, such as limits on share transfers or prohibitions on offering shares to the public. The articles must also reflect the governance structure required for a PLC.

Procedural Steps for Re-registration

The process for re-registering as a PLC involves several key steps:

  1. Board Meeting: The directors approve the proposal to re-register and call a general meeting of shareholders.
  2. Special Resolution: The shareholders pass a special resolution to approve re-registration and adopt new or amended articles.
  3. Application to Companies House: The company submits:
    • The special resolution
    • The amended articles of association
    • A statement of compliance
    • A balance sheet not more than seven months old, with an unqualified auditor’s report
    • A statement of capital and initial shareholdings
    • Form RR01 (application for re-registration)
  4. Registrar Review: Companies House checks the documents and, if satisfied, issues a new certificate of incorporation stating that the company is now a PLC.

Key Term: trading certificate
A certificate issued by Companies House allowing a PLC to commence business and exercise borrowing powers. It is a criminal offence for a PLC to trade or borrow before obtaining this certificate.

Worked Example 1.1

A private company, Alpha Solutions Ltd, wishes to become a PLC to raise capital from the public. It has an allotted share capital of £60,000, with £15,000 paid up. The directors call a general meeting, and the shareholders pass a special resolution to re-register and adopt new articles. The company submits the required documents and auditor’s report to Companies House. What must Alpha Solutions do before it can begin trading as a PLC?

Answer: Alpha Solutions must obtain a trading certificate from Companies House confirming that the minimum share capital has been allotted and at least one-quarter paid up. Only after receiving this certificate can it commence business or exercise borrowing powers as a PLC.

Capital and Financial Requirements

A PLC must meet strict capital requirements to protect public investors.

  • Minimum Share Capital: At least £50,000 allotted.
  • Paid-up Amount: At least 25% of the nominal value of each share and the whole of any premium must be paid up before trading.
  • Auditor’s Report: The company must provide a recent balance sheet and an unqualified auditor’s report confirming the capital requirements are met.

Worked Example 1.2

Beta Innovations Ltd has allotted share capital of £52,000, but only £10,000 is paid up. Can it re-register as a PLC?

Answer: No. Although the allotted share capital exceeds £50,000, at least £12,500 (25% of £50,000) must be paid up before re-registration as a PLC. Beta Innovations Ltd must ensure the paid-up amount meets the statutory minimum.

Governance and Disclosure Changes

Re-registration as a PLC brings stricter governance and disclosure obligations.

  • Directors: At least two directors are required.
  • Company Secretary: Must be qualified.
  • Financial Reporting: PLCs must file audited accounts within six months of the financial year end.
  • Transparency: PLCs must disclose directors’ remuneration, substantial shareholdings, and related party transactions.

Key Term: public limited company (PLC)
A company registered under the Companies Act 2006 as a public company, able to offer shares to the public and subject to enhanced regulation.

Exam Warning

For SQE1, remember that a PLC cannot commence business or exercise borrowing powers until it has received a trading certificate. Trading or borrowing before this is a criminal offence for the company and its officers.

Practical Implications and Strategic Considerations

Re-registering as a PLC allows a company to raise capital from the public and may be a step towards listing on a stock exchange. However, it also increases regulatory scrutiny, reporting obligations, and costs. The company must balance the benefits of public fundraising against the demands of PLC status.

Worked Example 1.3

Gamma Foods Ltd wants to expand and decides to re-register as a PLC. After re-registration, it plans to offer shares to the public. What additional steps must Gamma Foods take if it wishes to list its shares on the London Stock Exchange?

Answer: Gamma Foods must comply with the Financial Services and Markets Act 2000, the FCA’s Listing Rules, and the UK Corporate Governance Code. Listing is a separate process from re-registration as a PLC.

Revision Tip

For SQE1, focus on the statutory steps for re-registration, the capital and officer requirements, and the consequences of non-compliance. Practice applying these rules to problem scenarios.

Key Point Checklist

This article has covered the following key knowledge points:

  • The statutory process for re-registering a private company as a public limited company under the Companies Act 2006
  • The minimum share capital and payment requirements for PLC status
  • The need for a special resolution and amended articles of association
  • The requirement for at least two directors and a qualified company secretary
  • The necessity of a trading certificate before commencing business as a PLC
  • The enhanced governance and disclosure obligations for PLCs

Key Terms and Concepts

  • re-registration
  • special resolution
  • minimum share capital
  • company secretary
  • trading certificate
  • public limited company (PLC)
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