Ltd vs. PLC: Difference Between an Ltd and a PLC

If you are planning to start a business in the UK and are confused about choosing an appropriate business structure, you are most welcome here. 

Entrepreneurship can be exciting, but choosing your business’s legal structure is essential before starting this journey. When people think of UK businesses, the terms “LTD” and “PLC” are often the first to come to mind.

But what do these terms mean, and how are they different? Let’s look at the battle of LTD vs. PLC.

Business Structure Types in the UK

When you decide to do business in the UK, you may have many questions in mind. You may look for the answers to these questions. For example, how many business structure types does the UK have, or what kinds of ownership types in business are popular in the UK? 

The most common business structures in the UK are : 

• Sole Trader: A sole Trader is an individual who runs and owns a business. This is the most accessible type of business structure in the UK. You can register this business in the UK for a low fee with HMRC. As a sole trader, the owner is responsible for the business’s debts and liabilities. 
  

• Partnerships: When two or more individuals agree to conduct business and share the profits, losses, and responsibilities, it’s called a partnership. Each partner will be liable for all the debts if your business fails.
  

• Limited Liability Partnership (LLP): An LLP or Limited Liability Partnership is like a partnership, but the partners don’t have to pay for all the business’s debts. It offers limited liability to its partners while allowing them to participate in business management. Professional service firms frequently use this structure. An LLP can be formed with two or more members; the members can be a company or an individual. LLPs must be legally registered at Companies House with HMRC. 
  
  
• Private Limited Company (Ltd): A private limited company (Ltd) is formed as a separate legal entity from its owners or shareholders. This structure protects owners’ personal assets more. The UK Companies Act 2006 governs private limited companies with specific reporting and regulatory requirements. It must have at least one director and one shareholder.
  

• Public Limited Company (PLC): A limited company that can offer its shares to the public is called a PLC. This means that anyone can buy company shares. PLCs are subject to more regulations than private limited companies.

Now that you know about the most common ownership business structures in the UK, let’s learn about PLCs and Ltds more broadly: 

What Is a Limited or Ltd Company?

The word “Ltd” stands for limited and is used in the names of business legal structures. 

In the UK, “Ltd” or “Limited” is used to show that a business is a private limited company. An Ltd has its own liabilities, profits, and assets as a legal entity. The liability of the owners or shareholders is limited to the amount of money they have invested in the company. 

It’s a popular choice for businesses of various sizes, offering limited liability protection to its shareholders. This means that the shareholders’ personal assets are not at risk beyond their investment in the company. Instead, their liabilities are limited to the value of their shares in the company. In LTD, you can offer shares to stakeholders only.

What Is a PLC?

The word “PLC” stands for public limited company. 

A public limited company (PLC) is a separate legal public company in the UK. It can sell and trade its shares to the public for funding and expansion opportunities. PLCs are typically larger businesses than private limited companies (Ltd.) and are often listed on the stock exchange. Also, it has its own liabilities, assets, and profits. 

PLCs must have a minimum share capital and adhere to more stringent reporting and regulatory requirements than private companies.

Differences Between Private and Public Limited Companies

Choosing the proper business structure is the most crucial factor in the dynamic business landscape for every business owner, investor, and business enthusiast. Private Limited Companies (Ltd) and Public Limited Companies (PLC) are common choices in the United Kingdom. The choice between these structures is not just a matter of legality but a strategic decision that aligns with a company’s objectives, growth trajectory, and risk tolerance. 

To find the best structure for your business, you need to know the differences between PLCs and Ltds. These two business structures have a lot of differences, such as:

Minimum Share Capital

The minimum share capital requirement is relatively lower if you form an Ltd as a small business.

Whereas PLCs are mandated to meet a higher minimum share capital requirement to ensure they have the financial resources to meet their obligations to their shareholders, creditors, and the public. 

Shares and Ownership Structure

Ltd is a privately held company that sells and trades shares to its stakeholders. Only a small group of people—like the company’s founders, investors, and employees—can own it. As LTD shares aren’t publicly traded on the stock exchange, it keeps ownership private. 

On the other hand, PLC extends its arms to the public, making its shares available for purchase on the stock market. This aspect of public trading allows diverse investors to participate in the company’s ownership.

Public Perception and Reputation

The private nature of Ltds can often convey an image of stability and controlled growth. However, the absence of public trading might limit their visibility and recognition.

PLCs can command higher visibility, prestige, and investor interest as publicly traded entities. However, the public and regulators are also constantly monitoring them.

Formation and Incorporation Variations

There are significant differences between the formation and incorporation of PLCs and Ltds in the UK:

• Setting up a PLC is more complicated and time-consuming than a Ltd.
  
  
• Private limited companies (Ltd) do not have a minimum share capital requirement, while public limited companies (PLCs) must have a minimum share capital of £50,000.
  
  
• Ltds can have a maximum of 200 shareholders but a minimum of one director, while PLCs must have at least two directors.

Access to Funding

Ltd. can raise funds through private investments, loans, and retained profits. However, the scope of funding is somewhat limited compared to PLCs.

PLCs possess a significant advantage in terms of funding due to their ability to issue shares to the public. This opens doors to substantial capital infusions for expansion and development.

Reporting Requirements for Ltd and PLC

Reporting requirements for private limited companies (Ltds) are generally less extensive than for PLCs. This allows Ltd to operate with a greater degree of privacy.

PLCs are subject to more strict reporting and regulatory requirements. They must disclose financial information, operations, and other pertinent details to the public. This transparency is essential for protecting the interests of public investors.

Long-Term Goals and Growth Strategy

Ltd. is well-suited for businesses prioritizing controlled expansion and maintaining tight ownership structures. While PLCs are apt for businesses seeking substantial growth, increased capital infusion, and a broader market presence.

Trading and Stock Exchange in PLC and Ltd

On a stock exchange, you can only list PLCs. The general public can’t buy shares from Ltd in this way. So, your company can’t be listed on the stock exchange. Instead, you can arrange the private purchase of shares.

But if you form a PLC, the entity can become listed on the exchange by following legal requirements. 

Trading Certificate from Companies House

A UK public limited company (PLC) must obtain a trading certificate from Companies House before trading. This legal requirement is designed to protect the public from investing in a company that is not financially viable.

On the other hand, a private limited company (Ltd.) must not obtain a trading certificate before it can commence trading. However, it is still a good idea to do so, as it will help to protect the company’s creditors and shareholders.

Ltd vs. PLC: Business Structures Comparison Chart

The distinction between PLCs and Ltds lies in their ownership structure, share trading availability, regulatory requirements, and access to funding. PLCs are suited for businesses seeking public investment and willing to adhere to more stringent reporting standards. On the other hand, startups and small businesses frequently prefer Ltd because they provide a more private ownership environment. For a better understanding, please check out the business structure comparison chart below:

Are There Any Similarities Between Ltd and PLC? 

Though limited Companies (Ltds) and Public Limited Companies (PLCs) have some differences, their roles in the business world are based on the same principles. These similarities show that both structures are based on the same basic business principles: 

Limited Liability Entities

Regardless of the acronym, both structures provide a vital shield for shareholders. Personal liability is limited to the value of their invested capital, safeguarding personal assets from potential business liabilities and debts.

Legal Entities

Ltds and PLCs are legally recognized business structures registered with the Companies House within the UK, offering entrepreneurs and business owners a formal framework to operate, conduct transactions, and protect their interests.

Business Flexibility

Both structures offer flexibility in managing and operating the business. Shareholders can determine the company’s direction, strategic priorities, and operational policies.

Regulatory Compliance

While their extent may differ, both structures are subject to regulatory requirements. Whether filing annual financial statements or adhering to specific reporting standards, Ltds and PLCs are expected to maintain transparency and accountability.

Corporate Governance Contrasts

Both Ltds and PLCs necessitate a certain level of corporate governance. This entails having directors and company officers responsible for managing the company’s affairs, making strategic decisions, and ensuring compliance.

Perpetual Existence

Both Ltds and PLCs have the advantage of perpetual existence. Their continuation isn’t tied to the lifespan or involvement of any specific shareholder or director. This feature contributes to long-term stability.

Tax Implications

While tax considerations can vary, Ltds and PLCs are subject to corporate tax on their profits. Dividends and capital gains can influence shareholders’ personal tax liability.

Capital Raising

Though PLCs have a more direct path to public investment, both structures (Ltd and PLC) can raise capital by issuing shares to shareholders. This infusion of funds can be crucial for business growth and development.

Legal Aspects of Ltd and PLC

Ltd and PLC are deemed separate legal entities from their owners or shareholders. This separation ensures the business can enter into contracts, own assets, and undertake legal actions in its name.

Professionalism and Credibility

Both Ltds and PLCs carry a certain level of professionalism and credibility in the eyes of clients, partners, and investors. The formal structure signifies a commitment to transparent operations and adherence to legal standards.

Ltd Vs. PLC: Pros and Cons

As you know, there are differences and similarities between private limited companies (Ltd) and public limited companies (PLC) in the UK; both have their own advantages and disadvantages. The choice between them depends on factors like business goals, funding needs, and the desired level of control. Below, we’ll outline some general pros and cons of both business structures:

Pros of Ltd (a Private Limited Company)

• Limited Liability: Shareholders’ assets are protected from the company’s debts and liabilities, limiting financial risk to their investment.
  
  
• Control: Founders and owners usually have greater control over the company’s operations and decision-making, as ownership is often more concentrated.
  
  
• Privacy: Private limited companies typically have fewer disclosure requirements, which provides privacy for the company’s financial and operational information.
  
  
• Flexibility: Limited liability companies have fewer regulatory requirements and less reporting than PLCs, allowing for more streamlined operations.
  
  
• Ownership Restrictions: Ownership is often restricted to smaller shareholders, reducing the likelihood of hostile takeovers or unwanted shareholders.

Cons of Ltd (a Private Limited Company)

• Limited Capital Raising: Raising capital can be more challenging for public companies, as private limited companies often rely on a smaller pool of investors.
  
  
• Less Public Recognition: Private limited companies may have less public recognition and market visibility than publicly traded companies.
  
  
• Limited Exit Options: Exiting an investment in a private limited company can be more complex than selling publicly traded shares.
  
  
• Ownership Restrictions: Depending on shareholder agreements or local regulations, there may be restrictions on transferring shares in private limited companies.
  
  
• Growth Constraints: As Ltds have restrictions on the number of shareholders and transferability of shares, they might face limitations in attracting investment for significant growth.

Pros of PLC (Public Limited Company)

• Access to Capital: PLCs can raise substantial capital by issuing shares to the public through stock exchanges, making it easier to fund expansion and large projects.
  
  
• Liquidity: Shares of PLCs are traded on public exchanges, allowing shareholders to buy or sell their holdings quickly, promoting liquidity.
  
  
• High Profile: Being publicly listed can enhance a company’s reputation and visibility, potentially attracting more customers, partners, and investors.
  
  
• Growth Opportunities: PLCs have a better chance of attracting institutional investors and more significant funding rounds, facilitating rapid growth.
  
  
• Mergers and Acquisitions: PLCS can use its shares as a currency for acquisitions and mergers, offering potential targets a chance to become shareholders.

Cons of PLC (Public Limited Company)

• Disclosure Requirements: PLCs have more extensive reporting and disclosure obligations, exposing financial and operational details to the public and regulators.
  
  
• Loss of Control: As ownership can be widely distributed, founders and initial shareholders may have less control over decision-making and strategy.
  
  
• Regulatory Complexity: PLCs are subject to stricter regulations and corporate governance standards, which can lead to higher administrative costs and legal obligations.
  
  
• Vulnerability to Market Fluctuations: Market sentiment and economic factors can affect the share prices of PLCs, potentially increasing volatility.
  
  
• Costs: Becoming a PLC and maintaining compliance with regulatory standards can be expensive and resource-intensive.

FAQs on Ltd Vs. PLC

Q1: Who is the owner of a PLC?

Answer: The individuals, companies, or mutual funds that buy shares from PLC are the company’s owners. 

Q2: Are there any restrictions on the number of shareholders?

Answer: A PLC must have at least two shareholders. There is no maximum number of shareholders, but there are some practical considerations to remember. For example, managing a company with many shareholders can be challenging, and getting everyone to agree on decisions can also be challenging.

Q3: What are the key features of a PLC? 

Answer: The most important thing about a PLC is that it is based in the U.K. and trades on the stock market. The letters “PLC” must also come after the company’s name.

Q4: What does “Ltd.” mean in front of a business name? 

Answer: The word “Ltd.” in front of a business name means that a company is a private limited company. A private limited company is a type of company that has limited liability. This means that the company’s shareholders are not personally liable for the company’s debts.

Q5: Is LLC the same as Ltd?

Answer: Most of the time, LLC and Ltd are the same type of business. In the U.S., the term “limited liability company” (LLC) is more common, while “limited” (Ltd.) is more common in the U.K. The different rules about ownership, taxes, and dividends are based on the type and location of the company.

Wrapping Up

In conclusion, when choosing Ltd vs. PLC in the United Kingdom, you should remember that Ltd offers greater control, privacy, and ease of regulatory compliance, making it suitable for businesses seeking controlled expansion in a private ownership environment. In contrast, PLCs provide access to considerable capital, increased visibility, and growth opportunities, making them attractive to businesses seeking rapid expansion and a more significant market presence.

Now, the decision is yours, whether you choose Ltd. or PLC. Do you want an expert to answer your questions and guide you through setting up your business as a non-UK citizen? Business Globalizer can help you set up your business from scratch or improve your existing one. We have amazing packages for UK company formation tailored for you.

Happy entreprenuring!