What is a private company?
Most companies in the UK are private limited companies limited by shares (or ‘LTDs’), often simply referred to as ‘private limited companies’. Private limited companies are legally distinct entities (ie they exist separately from their members or shareholders) with their own assets, profits, and liabilities. They’re owned collectively by anyone who owns shares in the company – ie the shareholders.
The personal finances of any shareholders are protected by limited liability. This means that their liabilities in relation to the company are limited to the value of their shares. This contrasts with unlimited liability, where a business owner is personally responsible for any and all losses that the business takes.
Private companies must be incorporated with Companies House and are required to adopt certain legal documents, including Articles of association and a memorandum of association, together forming the company’s constitution.
Private limited companies are managed by company directors. They must have at least one director (who must be a natural person, ie a human and not a company). The directors will often be the sole or primary shareholders. They have various legal duties that they must comply with when running the company, one of which is to ensure that an annual return is submitted to Companies House every year. A company will often have other appointees too, to help run the company effectively. For example, a company secretary.
Shares in private companies are not offered for sale on public markets. Generally, they’re owned by some combination of the company’s founders, directors, staff, family members of these individuals, and sometimes institutional investors (eg private equity firms).
An alternative to a private company limited by shares is a private company limited by guarantee. This is a company where, instead of its members owning shares, they’ve made guarantees to contribute specific amounts to the company’s assets if it is wound up.
For more information, read Private limited companies.
What is a public company?
Public limited companies (PLCs) are similar to private limited companies in that they are legally distinct entities with their own assets, profits, and liabilities, and they are owned by their members (ie shareholders).
PLCs are different in that shares in a public company can be freely sold and traded to the general public and listed on a public stock exchange. PLCs are the only type of company allowed to raise capital from this type of public investment in the UK.
PLCs must also be incorporated with Companies House and form a constitution (ie by adopting articles of association and a memorandum of association). Additionally, they must meet additional requirements set by the Companies Act 2006, including that they must:
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have a minimum allotted share capital of £50,000 (with at least 25% being fully paid up)
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have at least two directors
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have a company secretary with professional qualifications, and
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hold an annual general meeting (AGM) every year
What are the key differences between private and public companies?
Some of the main differences between private limited companies and public limited companies include:
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public companies can offer their shares for sale to the general public
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two directors are required for public companies, whereas only one is needed for a private company
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public companies cannot accept an undertaking (ie promise) to do work or perform services as consideration for an allotment of shares (ie in exchange for the shares)
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public companies cannot purchase their own shares out of capital (ie they can generally only purchase their own shares if they use distributable profits to do so)
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public companies must appoint a company secretary who is suitably qualified; private companies do not need to
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public companies usually have six months in which to file their annual accounts, whereas private companies have nine months
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public companies must hold an annual general meeting; this is not a requirement for private companies
How do you change a private company to a public company?
A private company can be re-registered as a public company in line with Part 7 of the Companies Act 2006, by:
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passing a special resolution (ie with at least 75% of shareholder votes in favour), and
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delivering Form RR01 to Companies House
The company must also meet the requirements for being a public company. For example, by having an allotted share capital of at least £50,000. For more information, see the government's guidance on re-registering a private limited company. This procedure can also be reversed (ie you can re-register a PLC as an LTD).
What are the pros and cons of going public?
The key benefit of becoming a PLC (ie ‘going public’) is being able to raise capital by selling shares to the general public. Going public often also generates publicity and introduces a company and its products to new consumers. It can also lend the company prestige that’s associated with the company having to meet the greater regulatory and administrative requirements of a PLC.
However, there are more rules and requirements that public companies must comply with. So, this is generally only a suitable option for fairly mature companies, with a suitably advanced infrastructure, looking to expand.
