Public Limited Company – Definition

Cite this article as:"Public Limited Company – Definition," in The Business Professor, updated November 26, 2019, last accessed May 26, 2020, https://thebusinessprofessor.com/lesson/public-limited-company-definition/.

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Public Limited Company (PLC) – Definition

A public limited company is the legal status of any firm which has offered shares to members of the general public and in turn owns a limited amount of its own shares. A PLC’s stock or company share is presented to the general public and can be purchased or claimed by any individual, either privately during the process of the initial public offering or via trades on the stock exchange market. Public limited firms are also known as publicly held companies.

A Little More on What is  a Public Limited Company

Public limited companies (PLCs)are commonly used in the United Kingdoms and in a number of Commonwealth nations. This tag is used in contrast to the “Inc.” or “Ltd.” tags that are being used in the United States and a number of other nations. In the regions named above, the PLC tag is mandatory and it is used to inform investors or any individual who wishes to deal with such a company that the firm is publicly held and in most cases; it is very large. Public limited companies can either be listed or unlisted on stock exchanges. It is up to them if they wish to be listed and if they wish not to be. They are also regulated just like other types of firms and are mandated to publish their financial reports and explain their financial health to help investors and shareholders size up the value of the stocks. Unlike other company statuses, the lifespan of a shareholder in a publicly held company (whether the main shareholder or not) doesn’t affect how long such a business would continue to hold. These types of businesses are best used to raise capital, but they also bring about increased regulations.

Pros and Cons of Public Limited Companies

A public limited company has many benefits when it comes to operations and profitability. One of such benefits is the increased ability of such a firm to raise capital financing via selling public shares. Selling shares to the public in this situation means that there is no entry barrier to investing in such a firm, and as such, any person can choose to join the company. When a public limited company sells shares to the public, they’re amassing capital as a private limited company. Also, if the company is listed on a stock exchange market, it can increase their potentials of being targeted by hedge funds, venture capitalists, mutual funds, and other types of traders and investors. Being a PLC also means that the risk of running a business is spread out. By giving people the ability to buy into the business, the PLC is also giving them the opportunity to buy into the risk, thus reducing the risks which the Public Limited Company shoulders. PLCs also allows for big development and growth directives, and this can result in faster expansion and client’s satisfaction. Thus, PLCs can buy more shares, purchase more products, fund research and development, and also help he pay off debt.

Just like every other thing in finance, a Public Limited Company also has its own disadvantages. For example, PLCs are subject to more stringent regulations which might reduce their creativity in the way they operate or manage sales. A PLC is required to have a minimum of two directors and they’re mandated to hold meetings on an annual basis (AGMs). Also, companies with this status are required to maintain a high level of transparency when it comes to issues concerning accounting and auditing. Due to the fact that they’re public, companies with this status are vulnerable to hostile takeovers, corporate raiding, and they also require substantially huge financial contributions to maintain their operations and prevent themselves from going bankrupt.

Important Points

  • A PLC is the legal status or designation of an LLC (Limited Liability Company) that has limited shares and liability, and offers a substantial part of its stocks to the public, thus giving it ownership of a few.
  • PLCs can choose to be listed or delisted on a stock exchange. Unlike other company types, PLCs are required to always publish their financial health status, plus they are held down by numerous regulations.
  • The highest benefit of owning a PLC or switching to a PLC status is the ability to raise capital financing by issuing shares to the general public.
  • PLCs are mandated to have a minimum of two directors and they’re also required to have a high level of transparency especially in accounting and auditing.

Example of a Public Limited Company (PLC)

By the definition of a PLC, it is accurate to say that all firms listed on the London Stock Exchange (LSE) are public limited companies. For instance, automaker Rolls Royce is notably called Rolls-Royce Holdings PLC. Fashion and accessory retailer Burberry is called Burberry Group PLC. Also, oil company British Petroleum is also formally known as BP PLC. From all the examples we stated above, it wouldn’t be entirely incorrect if one says that all firms on the LSE have the PLC status. The 100 largest public limited companies on the London Stok Exchange are combined or categorized in an index known as the Financial Times Stock Exchange 100 (FTSE) or colloquially, the “Footsie.” The firms in this groupings are representatives of the United States economy as a whole and the FTSE is comparable to the Dow Jones Industrial Average which is used in the United States of America. Also, it is essential to note that not all PLCs are visible on a stock exchange market, thus the use of the suffix PLC doesn’t necessarily mean that you can invest in such a firm via a formal exchange market. The companies that are not listed still use the PLC suffix because they meet other requirements that qualifies them, but have chosen not be traded on the stock exchange market or sometimes they don’t meet the requirements of getting listed on that stock exchange. Every company that is listed on the London Stock Exchange (LSE) is a public limited company (PLC).

Getting the Status of a Public Limited Company: The Basic Requirements

A PLC is formed in similar manner to other companies having other legal designations. Two people need to establish such a firm, build it via the filing of articles and contractual terms that define the company’s purpose, membership eligibility, and capital requirements. Shareholders in a public limited company get a higher number of shares than members of the management. It is absolutely normal to see the management receiving nothing in terms of shares allocation, as PLCs are not required to give shares to management. Also, being a public limited company allows a business to sell shares to investors in an attempt to raise capital. The London Stock Exchange has made it mandatory to list only companies with the PLC suffix in their ticker symbol on their formal exchange market. There are also a number of requirements that a company must meet for it to be able to obtain and maintain listings in the London Stock Exchange. First, a company is required to have at least £50,000 authorized share capital, and it must also satisfy ongoing disclosure and filing requirements of the stock exchange.

References for “Public Limited Company – PLC

https://uk.practicallaw.thomsonreuters.com/4-107-7082

https://www.investopedia.com › Insights › Markets & Economy

https://en.wikipedia.org/wiki/Public_limited_company

https://www.theformationscompany.com › Articles › FAQs

www.businessdictionary.com/definition/public-limited-company.html

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