IS A PLC ?
The initials plc after a UK
name indicate that it is a public limited company whose shares
may be offered for sale to the public. The designation plc or PLC
(either form is acceptable) was introduced in the UK by the Companies
and in the Republic of Ireland by the Companies (Amendment) Act 1983.
In the Republic of Ireland, the initals "cpt" (meaning
"cuideachta phoiblí theoranta") may be used instead also,
but this is rarely the case. Certain public limited companies
incorporated under special legislation (mainly nationalised
concerns) are exempt from carrying the letters plc or cpt.
When a new company is incorporated in either England
and Wales or Scotland,
it must be registered with Companies
House, which is an Executive
Agency of the Department
of Trade and Industry. In the Republic of Ireland, the equivilant
body is the Companies
Registration Office, Ireland, Northern Ireland also has a
Registrar of Companies. Other types of company are the limited
limited company and the rarely-used unlimited
company; the latest form of company introduced in 2001
is the limited
liability partnership (LLP).
When forming (or creating) a PLC there must be at least £50,000
worth of share capital of which at least 25% must have been paid for.
While it is not compulsory for a PLC to "float" its shares
(some PLCs retain ownership of all their shares, maintaining the PLC
designation for the extra financial status) many do and their shares
are usually traded on either the London
Stock Exchange or the Alternative
Investments Market (AIM). Irish public limited companies usually
trade on the Irish
Stock Exchange, though many also list on the LSE, or more rarely,
the AIM. Public limited companies are able to obtain more capital than
other firms due to the share sales and also banks are more likely to
give out loans to them as they have better credit.
of UK public limited companies
of top 1000 PLCs (http://www.top1000quotedcompanies.co.uk/companies.htm)
A PLC - LEGAL REQUIREMENTS & SHARE CAPITAL in the UNITED KINGDOM
1. What is share capital?
When a company is formed, the person or people forming it decide
whether its members' liability will be limited by shares. The number
of shares which make up the division of the company must be stated in
its memorandum of association (one of the documents by which the
company is formed). The Memorandum of Association :
amount of share capital in £ pounds, the company will have; and
division of the share capital into shares of a fixed amount: £1,
£0.10p, etc nominal value per share.
members must agree to take some, or all, of the shares when the
company is registered. The memorandum
of association must show the names of the people who have agreed
to own shares and the number of shares each will own. These people are
called the subscribers.
2. What is authorised capital?
The amount of share capital stated in the memorandum of association is
the company's 'authorised' or 'nominal' capital.
3. Is there a maximum and minimum share capital?
There is no maximum to any company's authorised share capital and no
minimum share capital for private limited companies. However, a public
limited company must have an authorised share capital of at least
£50,000 (and, if it is trading, issued capital of £50,000 - see
4. Can a company alter its authorised share capital?
A company can increase its authorised share capital by passing
resolution (unless its articles
of association require a special
resolution). A copy of the resolution - and notice of the increase
123 - must reach Companies House within 15 days of being passed.
A company can decrease its authorised share capital by passing
an ordinary resolution to cancel shares which have not been taken or
agreed to be taken by any person. Notice of the cancellation, on Form
122, must reach Companies House within one month.
For information about resolutions, see our booklet, 'Resolutions'.
5. What is issued capital?
Issued capital is the value of the shares issued to shareholders. This
means the nominal value of the shares rather than their actual worth.
The amount of issued capital cannot exceed the amount of the
A company need not issue all its capital at once, but a public limited
company must have at least £50,000 of allotted share capital. Of
this, 25% of the nominal value of each share and any premium must be
paid up before it can start business or borrow.
6. Getting a 'Certificate
to commence business and borrow'
In order to be able to issue shares for sale by the public, a newly
formed plc must obtain a trading certificate from Companies
House. To obtain a trading certificate, a new company
incorporated as a plc, must deliver a statutory declaration on Form
117 confirming that its share capital is at least the statutory
minimum. The Registrar will then issue a certificate entitling it to
do business and borrow - see the booklet, 'Company
Formation' for more information.
7. What does the allotment of shares mean?
'Allotment' is the process by which people become members of a
company. Subscribers to a company’s memorandum are deemed to have
agreed to take shares on incorporation and the shares are regarded as
'allotted' on incorporation.
Later, more people may be admitted as members of the company and are
allotted shares. However, the directors must not allot shares without
the authority of the existing shareholders. The authority will either
be stated in the company's articles of association or given to the
directors by resolution passed at a general meeting of the company.
8. What type of resolution is required to allot shares?
Any public or private company with share capital may give authority by
resolution. The authority must be for a fixed period of up to five
years. Any ordinary resolution giving, varying, revoking or renewing
an authority to allot shares must be delivered to Companies House
within 15 days of being passed.
A private company with share capital may instead pass an 'elective
resolution', to give, or renew, an authority. This authority can
be for any fixed period, which may be longer than five years. It can
also be for an indefinite period. An elective resolution
must also be delivered to Companies House within 15 days of being
9. A company must notify the Registrar when an
allotment of shares is made within one month of the allotment of
return on Form
88(2) must be delivered to Companies House.
If the shares are to be paid for in
cash, you must enter details of the actual amount paid (or due to
be paid) on the form. Do not include any amount that is not yet due
for payment on a partly paid-up share. The amount will reflect the nominal
value of the shares and any premium.
Nominal value and share premium
A company's authorised share capital is divided into shares of a
nominal value. The real value of the shares may change over time,
reflecting what the company is worth, but their nominal value remains
the same. When the company sells shares for more than their nominal
value, the actual sum paid will be in two parts - the nominal value
and a share premium. The share premium must be recorded separately in
the company's financial records in a 'share premium account'.
If the shares are to be paid for otherwise than in cash (see questions
the amount entered on the form against ‘Amount (if any) paid or due
on each’ must be ‘nil’ or ‘0.00’.
11. Must shares be fully paid-up at the time of allotment?
No. Payment may be deferred until later. However, shares allotted in a
public company must be paid-up to at least a quarter of their nominal
value and the whole of any premium (except that this does not apply to
shares allotted under an employees' share scheme).
As a general rule, a company may allot bonus shares to members as
fully paid-up. A company which has funds available for the purpose may
also pay up any amounts unpaid on its shares.
A company's shares must not be allotted at a discount (that is, for an
amount less than the nominal value).
12. Must payment for shares be in cash?
No, it can be in goods, services, property, good will, know-how, or
even shares in another company. The latter is often used when one
company takes over another. It also includes cash payments to any
person other than the company allotting the shares.
Public companies are more restricted in what they may accept in
payment for shares and non-cash payments must be valued before shares
are allotted (except in the case of bonus issues, mergers or
arrangements whereby shares in another company are cancelled or
transferred to the company). A copy of the valuation report must be
delivered to Companies House with Form
Generally shares may be allotted for payment:
share is paid up in cash if the amount due is received by the company
(in cash or by cheque, or the company has been released from a
liquidated liability) or an undertaking has been given to pay cash to
the company at a future date. ‘Cash’ includes foreign currency.
Must I send any more information if allotments include non-cash
88(2) must show the extent to which the shares are to be treated
as paid-up. This must be stated as a percentage of the total amount
payable in respect of the nominal value and any premium.
Calculating the extent to which shares are paid-up
If an allotment is partly for cash and partly for a non-cash payment,
then the extent to which the shares are treated as paid-up must
include the cash and non-cash elements. For example, a £1 share
allotted for 50p in cash ( either paid or due and payable ) and 50p in
services is still 100% paid-up. If the shares were allotted at a
premium, the percentage includes the nominal value of each share and
also include a brief description of the non-cash payment for which the
shares were allotted (for example, 'in return for the transfer of 100
ordinary shares of £1 in XYZ limited' or ‘capitalisation of
reserves’). It must be accompanied by the written contract under
which title of the shares is constituted.
If there is no written contract, a Form
88(3) must be delivered to Companies House with Form
88(2) within one month of the allotment. Form
88(3) is not acceptable when there is a written contract.
Acquiring shares for a non-cash payment involves the transfer of
property, which may amount to a chargeable transaction under the Stamp
Act. Please note: For contracts entered into
after 30 November 2003, there is no need to have the written contract
or Form 88(3) stamped by the Inland Revenue.
duty is a tax levied on the purchase of property and shares. When
buying property (houses or land), the stamp duty is calculated as a
percentage of the value of the property, so the larger the property
the higher the stamp duty. Properties that are valued below £60,000
are exempt and there is a ceiling of 4% of the value of any properties
worth over £500,000.
DUTY PAYABLE on BUYING STOCKS and SHARES
duty rounded to next £5
GO PUBLIC ?
There are many benefits to being a public company.
Some of the most compelling advantages can include:
1. Access to capital
Being a public company can give investors more confidence in
investing in your company. When your stock has a public price, it
gives you a benchmark price to raise capital. Any potential investor
can go on the Internet or call a broker and get a quote of your
company’s stock price. Some public companies then give investors who
buy stock directly from the company in a private placement a discount
from the public trading price (if they are willing to hold the stock
for one year). This gives this investor even more of an incentive to
Money raised can be used for a variety of purposes including;
growth and expansion, retiring existing debt, corporate marketing and
development, acquisition capital and corporate diversity. Once public,
a company's financing alternatives are greatly increased. A publicly
traded company can go to the public markets for capital via a stock or
bond issue, and may also convert debt to equity.
By going public, a company can create a market for its stock.
This gives the company a greater opportunity to sell shares of stock
to investors. In general, stock in a public company is much more
liquid than stock in a private enterprise. Liquidity is created for
the investors, institutions, founders, and owners. Investors in the
company may be able to buy or sell the stock more readily. Oftentimes
institutional investors and venture capitalist will require a company
to become public before committing funds.
Ownership of stock in a public company may help the company's
principals to borrow more easily and eliminate personal guarantees.
Liquidity can also provide an investor or company owner an exit
strategy, and portfolio diversity. Liquidity is one of the many
reasons why public companies are typically valued so much more than a
3. Mergers and Acquisitions
Once a company is public and the market for its stock is
established, the stock can be considered as valuable as cash when
acquiring other businesses. A public company usually increases a company's valuation leading
to a variety of opportunities for mergers and acquisitions. A public
company also has the advantage of using the market's valuation when
exchanging stock in an acquisition.
Securities and Exchange Commission disclosure requirements offer
the public more confidence because in annual reports the company
outlines its financial condition and corporate strategy which
encourages corporate growth, development and merger activity. In
addition to acquiring companies many other assets can be purchased
4. Increased Valuation
The market value of a public company is normally substantially
higher than a private company with the same structure in the same
industry. Converting a private company to a public company results in
a substantial increase in value to owners. Statistics published by the
United States Chamber of Commerce show that sellers of private
companies receive an average of 4 to 6 times their net earnings. By
comparison, public companies sell at an average of 25 times their net
earnings. High tech companies are valued even higher.
Investors in a private company will discount the value of its
equity securities by reason of their "non-liquidity" - the
lack of a ready, public market for them. Thus, public companies often
are valued so much greater than private, similar companies in the same
industry. The availability of other alternatives to raising capital
permits a public company greater leverage in its negotiations with
both institutional and individual investors. Many institutional and
individual investors prefer investing in public companies since they
have a built-in "exit," that is, they can sell their stock
in the public market. Many companies that were private and about to be
purchased went public to be purchased at a much higher price.
Many companies use stock and stock option plans as an incentive
to attract and retain talented employees. It is increasingly common to
recruit and compensate executives with a combination of salary and
stock. This reward could be deemed even more desirable when the
company is publicly traded. Stock can be instrumental in attracting
and keeping key personnel. Also, certain tax advantages are a
consideration when issuing stock to an employee. Being public can help
to create a market for the company's stock. This market can result in
liquidity and reward for the company's employees.
A stock plan for employees demonstrates corporate goodwill and
allows employees to become partial owners in the company where they
work. An allocation of ownership or division of equity can lead to
increased productivity, morale and loyalty. This type of compensation
is a way of connecting an employee’s financial future to the
A public offering of stock can help a company gain prestige by
creating a perception of stability. The status of being a public
company can have a dramatic effect on a company's profile, perceived
competitiveness and stability. This perception can lead to expanded
business relationships and added confidence in the consumer.
A company's founders, co-founders and managers gain prestige
from being associated with a public company. Prestige can be very
helpful in recruiting key employees, marketing products and services
to your target market. When sharing ownership with the public, you
enhance the company's reputation and increase its business
opportunities. Your company can gain additional exposure and become
Often a company's suppliers and consumers become shareholders as
well as joint venture partners, which may encourage continued or
increased business. Once public, lenders and suppliers may perceive
the company as a safer credit risk; this will enhance the
opportunities for favorable financing terms. Indeed, the suppliers'
and customers' perception of company success is often a
self-fulfilling prophecy. Many people have called it the ultimate
7. Personal Wealth
One of the most important benefits of a public offering is the
fact that the company's stock eventually becomes liquid, offering
rewards and financial freedom for the founders and employees.
A public market for stock provides a potential exit strategy and
liquidity to the investors. A psychological sense of financial success
can be an added benefit of going public. A public company can enhance
the personal net worth of a company's shareholders. Even if a public
company's shareholders do not realize immediate profits,
publicly-traded stock can be used as collateral to secure loans. Many
feel it makes sense at an appropriate time for investors and
entrepreneurs to cash out some of their equity in order to diversify
their holdings or to enjoy life. Employees and officers have two ways
to add to their wealth: by receiving a salary and selling stock or
trading the stock for another type of asset.
8. Estate Planning
The public company can be utilized as part of a retirement
strategy for business owners and allows them to pass assets to heirs.
A business owner may wish to transfer the accumulated value in a
business to relatives who have no interest in or aptitude for running
it, dividing up property among family members, and settling up an
Public companies are more likely to receive the attention of
major newspapers, magazines and periodicals than a private enterprise.
The proper use of press releases, interviews or news stories can
increase investor awareness, shareholder value and demand for the
stock. A strong ad campaign coupled with media initiatives can
potentially increase sales and revenue.
The publicity received from being public can encourage
investments from the public, new business development and strategic
alliances. Analyst reports and daily stock market tables contribute to
further awareness by consumers and the financial community. By virtue
of being a public company your company's story can more easily get out
to the world. This allows for investors who would not invest in
private companies but will invest in public companies to find out
about your company.
The publicity that a public company may receive can attract the
attention of potential partners or merger candidates. Because the
financial condition of a public company is subject to the scrutiny of
the Securities and Exchange Commission reporting requirements,
existing or future business relationships are strengthened. Many
private firms do not appear on the radar screen of potential acquirors.
Being public makes it easier for other companies to notice and
evaluate your company for potential synergies.
without an underwritten offering has the following benefits:
LSE building Paternoster Square
material and any views expressed herein are provided for information
purposes only and should not be construed in any way as an endorsement
or inducement to invest in any specific program. Before investing in
any program, you must obtain, read and examine thoroughly its
disclosure document or offering memorandum.