Transition from Private to Public
Public Limited Companies
The law relating to a public limited company is more demanding and onerous than for private limited companies. As the public are encouraged to invest in public limited companies, they must be more transparent and accountable to the general public.
Every public company must have a minimum nominal issued share capital of £50,000, although many public companies have issued share capital far greater than this amount. The share capital however only requires to be paid up to the value of one quarter. The balance, or part of it, may be called up at any time by the company directors, or may be called up in full by the liquidators in the event of insolvency. Various rules apply in public companies relating to the capital maintenance, notably the net asset rule for dividends which operate to maintain healthy share capital as reassurance for creditors.
Companies which are incorporated initially as public companies must obtain a S.761 trading certificate prior to commencing trade. This is done by supplying the Registrar of Companies with a statement of compliance that the company has the capital it has stated, along with information on the company’s preliminary expenses and any benefits paid to promoters of the company. The Registrar of Companies will then issue the certificate once he is satisfied with the terms of the statement.
In the event that the company begins trading prior to the issue of the trading certificate, and fails to obtain the certificate within 21 days of being called upon to so do, then the directors will become personally liable for any loss sustained by any other transacting party.
It can often be simpler to begin trading as a private limited company and convert to public company status. In this instance no trading certificate is required.
Non Cash Considerations for Shares
As a public company is expected to have a strong capital base, shares may only be issued for non cash considerations where that consideration has been independently valued before the shares are allotted. This is in order to prevent people selling assets to the company which are inflated in value in exchange for shares.
Officers of a Public Company
Until the Companies Act 2006, public companies required a minimum of 2 shareholders. It is now permissible to have single member public limited companies; although a minimum of 2 directors and a properly qualified company secretary must be appointed.
Shareholders should vote to appoint or re-elect each director separately, unless a “package” of directors has been voted for unanimously. More onerous restrictions also apply with regard to loans to directors of public companies.
Issue of Shares to the Public
Many public companies do not in fact offer shares for sale to the public. They must however be admitted to a regulated market usually within a recognised investment exchange e.g. the London Stock Exchange. In order to be admitted, a company must comply with the Listing Rules which contain all the requirements for any company that wishes to have its shares listed on the London Stock Exchange. Companies are then said to be “listed”. Other non regulated markets e.g. the Alternative Investment Market will have requirements in line with the Public Offers of Securities Regulations 1995 which must be complied with.
Public companies must hold regular AGMs where members can hold directors accountable for their decision making. This contrasts with private limited companies that may dispense with meetings and carry out their decision making by way of written resolutions.
Public companies are required to provide greater detail and transparency in their accounts than private companies. This is in line with the focus on providing reassurance for investors and protecting commercial secrets for private firms.
Advantages of Public Companies
- Capital requirements give an impression of commercial stability and credibility to potential investors;
- Greater disclosure and transparency in accounting and company law practices enable potential investors to have a more informed view of the company’s activity;
- The general public often assumes that public companies are larger and more powerful than private companies. This is erroneous, but may still encourage private investment;
The Decision to Convert
Many private limited companies which are capable of conversion to a public company choose to remain private. Private shareholders may have no intention of selling shares in their company and potentially losing control of decision making. Shareholders may also be put off by the greater accounting and company law requirements and may find these to be intrusive and onerous and prefer to keep their information private.
Formation of a Private Company
Memorandum & Articles of Association
Trade Mark Registration & Protection
Directors’ Duties – General
Company Formation Services
Registered Office Services
Public Limited Companies