Difference Between a Private Company and a PLC Company

The difference between a private company and a public company formation: the Companies Act 2006 recognises a distinction between two different types of company: private companies where the investment is largely provided by the founding members either through their personal savings or from bank loans, and public companies where the intention is to raise large amounts of money from the general public. While this is the key difference there are others.

Private companies, obviously, are private. The vast majority of companies in the UK are private companies. The law assumes a closer relationship between the members in a private company what in a public company, and so private companies commonly restrict in the articles of association the membership of their company to those approved by the directors.

In essence if a member wishes to leave the company by selling their shares or a member had died, the directors have a say in who replace them, if anyone.

There may also be a pre-emption clause in the articles of association which means that if a member wishes to sell their shares they must offer the shares to the other members. Private companies have also historically been able to adopt an elective regime which recognised that often in private companies the directors and the members of the company are one and the same and so requirements for meetings, timing of meetings and lying of accounts can be suspended to streamline the operation of the private company.

The Companies Act 2006' main impact has been in reforming company law to suit small private companies and so many problematic requirements for private companies to hold meetings etc., has been done away with the Companies Act 2006. Private companies cannot invite the general public to buy shares but they also unlike public companies have no minimum capital requirements.

The members of a private company's only need to come up with a nominal amount of £1.00 or even 1p would suffice and even then the member could purchase the shares unpaid (plus the registration fee for the Companies Registrar) in order to form the company.

The members of a private company have limited liability and so the world limited or LTD must appear after the company's name. Members thereby are liable only for the amount unpaid on their shares and not for the debts of the company.

Public companies have the aim of securing investment from the general public and can advertise the fact they are offering shares to the public. In doing so, the company must issue a prospectus giving a detailed and accurate description of the company's plans.

Because the general public are involved and need to be protected the initial capital requirements for a public company are more onerous than for a private one. There is a minimum capital requirement of £50,000.While there is no formal limitation on public companies having restrictions on transfer of shares similar to those that apply to private companies, and such restrictions would be highly unusual, given that one of the reasons for forming a public company is to raise money from the general public and such a restriction would discourage them.

In any case if the public company is listed on the stock exchange any restrictions on transfer will be prohibited.

Note here that public companies are not necessarily listed on the stock exchange. A listing is essentially a private contractual arrangement between a public company and stock exchange (in the UK the London Stock Exchange (LSE) is itself a listed public company) to gain access to a very sophisticated market for its shares.

Some public companies do however exist outside the stock exchange listing system – Sir Alan Sugar's Amstrad PLC being a high profile example.

Public companies are therefore more suitable for inviting investment by large numbers of people. A private company is particularly suitable for running business in which small number of people is involved.