Public LLC Advantages and Disadvantages
There are many public limited liability company advantages and disadvantages that you should be aware of before forming your public limited liability company.3 min read
There are many public limited liability company advantages and disadvantages that you should be aware of before forming your public limited liability company (PLC). This type of business structure is a limited company that is formed in the United Kingdom (UK). The PLC, also known as a publicly held company, can issue shares to the public. Similar to U.S. corporations, PLCs are highly regulated; in fact, PLCs are generally more highly regulated than U.S. corporations, as the UK government, Companies House, has additional formation requirements, maintenance fees, and shareholder requirements for operating such an entity.
To form a PLC, you need the following:
- At least 2 shareholders
- At least EURO 50,000 of shares
- A minimum of 2 directors
- A company secretary
While corporations can act as shareholders, at least one of the directors must be an individual. Similar to any U.S. corporation, the PLC must file formation documents with the state government. Particularly, the PLC will file the documentation with the Companies House, which is a government agency based in the UK. You will need to file the Articles of Association, a formal application, and pay the applicable fee. There are additional requirements that must be met, and it is important to visit the Companies House website to ensure that you remain compliant with all of the formation requirements, along with ongoing maintenance requirements, for your PLC.
If you want to use a sensitive word in your company’s name, you will be subject to additional scrutiny from the government. For example, similar to a U.S. corporation not being able to use a prohibited term, the UK may or may not allow certain sensitive terminology, depending on the industry in which you are operating. If you choose to use a sensitive term, the government will need to approve it before allowing you to begin operating your PLC. After you’ve submitted the required paperwork, the Secretary of State will need to approve the application.
Below are some of the advantages to owning and operating a PLC:
- Ability to sell shares and raise additional capital
- Obtain additional financial assistance from investors to expand the company and its resources
- Limited liability, which means that the owners can’t be held personally liable for the company’s debts
- Liquidity, as shareholders can easily buy/sell their shares without having to worry about complex paperwork
- The value of shares is easy to identify since it is shown by the market capitalization
- Ease of acquisitions
While there are several advantages to owning and operating a PLC, there are some drawbacks too, which include:
- High costs
- Shareholders with no interest in helping the company
- Greater scrutiny
- Difficulty in making decisions
It is generally more difficult to form a PLC than a U.S. corporation. You must hire both a securities attorney and an investment bank. The underwriter will then offer the initial shares to the public, while receiving a commission. This could cost hundreds of thousands of dollars.
While most shareholders will want to see the company do well, and help the company meet its long-term goals, some shareholders just want to make money for themselves without having any involvement.
Since the PLC is public, anyone can purchase shares at any limit. However, there might be hostile investors trying to purchase a significant amount of shares, giving them greater voting power over the significant decisions of the company. Therefore, such hostile investors might try to takeover the PLC entirely.
Also, having the company go public means that there is less control for the founders of the company. Once the company goes public, there must be a board of directors who represent the company and all of its shareholders. This means that all major business decisions must first be discussed by the board and voted on. This could lead to lengthy decision-making processes, as decisions won’t be able to be made right away. This also means that the founders will have less decision-making rights, as the board is generally in charge.
Once operating a PLC, your company will be subject to greater regulation, as the government will closely monitor the company’s financial performance.
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