As anyone who has ever been involved with the formation of a new business in the UK will know, whether a limited company is public or private has significant ramifications for its shareholders, and their rights.
Both offer their own positives – and, of course, their own (potential) disadvantages, and it’s important that the decision between one and the other is made cautiously, and with the guidance of expert corporate solicitors. Each company is different and, while knowing the fundamentals of limited company structures is vital, you cannot circumvent the need for impartial advice tailored to your business’s unique needs.
Here’s what you need to know about public and private limited companies.
Whether private or public, limited companies share a key trait: the fact that the company itself represents its own entity, and the shareholders another.
This means that, if the business gets into debt, this debt is not considered to be the responsibility of the shareholder(s) to pay off – outside of the value of their shares, or the guarantee they have made.
If the business is limited by shares and the shareholder has not paid in full for their share in the business, they may be asked to ‘pay off’ that amount if the company gets into financial trouble. If the business is limited by guarantee, then the guarantor(s) will need to pay that guarantee, which is often a nominal sum.
Public Companies (PLC)
All shares in a public limited company can be bought and sold freely, and shareholder liability is limited only to any outstanding amount on the shares they own. As we mentioned above, shareholders of a PLC are legally considered to be separate entities to the business itself, so they cannot be held personally responsible for paying off any debts.
A public limited company structure means that the business can only be limited by shares. Share capital must be at least £50,000, and 25% needs to be paid upfront. Any remaining money will be liable if the business runs into financial trouble.
Public companies cannot be limited
against by guarantee.
Private limited companies are a little different. They can be limited
against by shares, as is the case in a PLC, but they can alternatively be limited against by guarantee. This guarantee may be as little as £1, meaning that shareholder liability is even lower than it generally would be in a PLC.
What’s more, private companies are not held to the same share capital requirements to which public companies are held.
Whatever the company’s share structure, it’s vital that the company specifies the shareholder’s rights. These can be found in the articles of association, and, as well as stipulating any voting rights or rights to participate in meetings, will clearly detail all pertinent information on the distribution of dividends throughout the company’s life cycle.
Before signing a shareholder agreement, it is imperative that you understand exactly what your rights and obligations to the business are – and how liable your personal assets are should the company run into legal trouble.