What’s the difference between a private limited company (“Ltd”) and a public limited company (“plc”)?
To a layman, the answer is often that the former is small (a ‘private concern’ if you like) whereas the latter is big, as in, ‘listed’; an entity of weight and substance. Of course, lawyers know that this is somewhat wide of the mark. We spent time at college writing essays about the reality that there are in fact some very large Ltds and correspondingly, many tiny, two member plcs which are certainly not listed and which have precious little financial clout.
All well and good.
But why in fact shouldn’t the reality reflect the common perception?
A significant proportion of the Companies Act 2006 is devoted to setting out the differences between Ltds and plcs, mainly in the form of the greater number of restrictions and obligations imposed on plcs.
So for instance, the Takeover Code applies to all plcs (not just listed ones); plcs cannot give financial assistance for the purchase of their own shares; and a plc must have a minimum allotted share capital of £50,000, to name but three.
Why are these extra impositions necessary? Is it meaningful that a small unlisted company which happens to be a plc is subject to the financial assistance prohibition rules, whereas a company which is identical in every respect save that it happens to be a Ltd is not? Is anything achieved by requiring a plc to have a minimum allotted share capital? And how often do those who want to rejig the share capital of a small unlisted plc, suddenly find themselves having to convert the plc to a Ltd and obtain an expensive waiver from the Takeover Panel to do so, even though all the shareholders are sophisticated and will agree to the capital rejigging in any event?
So here is my idea: Abandon the ‘concept’ of the plc and have only Ltds, with all the freedom which that entails, so long as the Ltd stays out of the public (listed) domain. If the Ltd wants to list, the nomenclature ‘plc’ could then be employed to distinguish the entity from its unlisted brethren.
Even for listed companies however, most of the requirements under the Companies Act currently imposed on plcs are simply unnecessary – either because the listing rules/AIM rules already apply a stricter discipline in one form or another, or because if they don’t, the practicalities of the market will. Minimum capital requirements or stipulations that a plc’s capital must be issued at least a quarter paid up are pretty meaningless for listed entities.
Similarly, is there any reason in principle for instance why a Ltd can reduce its share capital with shareholder support backed by a sworn solvency statement, but a plc has to go to court for an expensive rubber stamp?
Is there any reason in principle why a Ltd can pass a resolution of its shareholders by resolution in writing, but a plc must go to the expense of a shareholder meeting, even though in pretty much every case, a plc will have collected sufficient proxies in advance of the meeting to pass whatever resolutions are put, rendering the meeting itself a pointless charade.
The layman’s perception of what the law is in this area, is how it should in fact be.