LTD vs PLC - Similarities and Differences

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Who should read this?

This article is written for entrepreneurs and business owners in Ireland who are considering which company structure best suits their needs.

It's especially valuable for those weighing the legal implications of choosing between private limited companies and public limited companies, and anyone seeking to understand the regulatory requirements of different business structures.

Key Takeaways:

Private limited companies (LTDs) and public limited companies (PLCs) differ primarily in their ability to offer shares to the public, with PLCs requiring a minimum share capital of €25,000.
Both company types offer limited liability protection, meaning shareholders' personal assets are protected beyond their investment in the company.
PLCs must have at least two directors and a qualified company secretary, while private companies need only one director.
The Companies Act 2014 primarily addresses private companies in Parts 1-14, with specific provisions for PLCs in Part 17.
Private companies may transition to public status through a re-registration process when they require broader access to capital markets.

weighing up a public limited company versus a private limited company

In the Irish business landscape, choosing between a private limited company and a public limited company is a crucial decision for entrepreneurs and business owners. The Irish Companies Act 2014 provides a comprehensive framework for these different company types, outlining their structures, requirements, and operational guidelines. This article examines the key differences between private and public limited companies, helping you understand which might be the right choice for your business.

Private Companies vs Public Companies: Understanding the Basics

The Companies Act 2014 primarily focuses on private companies limited by shares in Parts 1 to 14, while Part 17 specifically addresses public limited companies (PLCs). Here's what you need to know about these two types of companies:

What is a Private Limited Company (Ltd)?

A private limited company (Ltd) is the most common type of company in Ireland. These companies:

Must have at least one director
Can have a single member
Cannot offer shares to the public
Have limited liability for shareholders, meaning that their personal assets are protected
Are generally subject to fewer regulatory requirements

Many private companies choose this structure because of its relative simplicity and the protection it offers to shareholders, who are not personally liable for the debts of the company.

What is a Public Limited Company (PLC)?

Public limited companies differ from LTDs in several important ways:

Can offer shares to the general public
Must meet additional statutory requirements
Often have more complex governance structures
Are typically larger businesses with greater capital needs
Can be listed on a stock exchange

Every company that wishes to have its shares traded on a stock exchange must be registered as a 'public limited company' or 'PLC'.

The Difference Between a Public and Private Company: Key Legal Distinctions

Understanding the fundamental legal differences is important when comparing these two company types:

Many companies find that these distinctions significantly impact their operational flexibility and growth potential.

How the Constitution Works in Private and Public Companies

Both private and public companies are bound by their constitutions, which:

Bind the company and its members
Can be amended by special resolution
Define the company's purposes and powers

Each company must have a constitution that governs its internal management. Public companies typically have a more comprehensive constitution compared to private companies, reflecting their more complex operational needs.

However, there are differences in capacity:

Private companies limited by shares have full and unlimited capacity to carry on any business or activity
PLCs also have full capacity, with their capacity not limited by their constitution (section 1012)

Public vs Private: Share Capital and Membership Structures

Share Structure in PLCs vs LTDs

The Companies Act provides specific regulations regarding shares for both private and public companies:

Both can have different classes of shares with varied rights (section 88)
Neither can have a subsidiary as a member of its holding company (section 113)
Section 69 specifically addresses shares in a parent public company held by a private limited subsidiary
The nominal value of shares differs between company types

A key difference is that shares in the company of a PLC can be offered to the public through a public offering, while private companies cannot make their shares available to the public.

How a Company May Become a Public Limited Company: Re-registration Process

The Act outlines the process for private companies to become public companies:

Section 1293 discusses shares allotted by a company applying to re-register as a PLC
Section 1294 applies certain provisions of Part 17 on allotments to a company that has passed a resolution for re-registration
Section 1295 allows an unlimited company to provide for reserve share capital on re-registration

Many private companies eventually seek to become public companies to access broader capital markets, particularly when their financing needs exceed what private investors can provide.

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Corporate Governance: How Private and Public Companies Differ

Company Directors and Company Secretary Requirements

Both private and public limited companies must have directors and secretaries, but with some differences:

A private company must have at least one director (section 128)
A public company must have at least two directors
All companies must have a company secretary, who can be one of the directors in a private company (section 129)
Section 1112 specifies that a PLC requires a qualified company secretary with additional qualifications
Section 142 limits the number of directorships a person can hold, with exceptions for public limited companies

The role of a director of a company carries significant responsibilities regardless of company type, but public company directors face additional scrutiny and regulatory obligations.

Members and Meetings

The Act outlines requirements for members and meetings that apply to both private and public companies:

Section 168 defines a member
Section 169 requires a register of members to be kept
Sections regarding quorum (182), proxies (183 and 184), and representation of bodies corporate at meetings (185) apply to both

A public company must hold an AGM (Annual General Meeting), while many private companies with multiple members are also required to hold an annual general meeting. This is a key aspect of company secretarial responsibilities.

Financial Reporting and Transparency: Key Differences Between Public and Private Companies

The financial reporting requirements differ between private and public companies:

Part 6 contains provisions regarding accounting records, financial statements, annual returns, and audit (section 272)
Section 1114 states that Part 6 does not apply to PLCs that are credit institutions or insurance undertakings
All companies must prepare financial statements that give a true and fair view (section 274)
Company directors must prepare a report for each financial year (section 325)
All companies must submit annual returns with their accounts to the Registrar

Public companies are generally subject to more stringent reporting requirements, needing to provide more information to the public and regulatory authorities compared to private companies.

Audit Requirements

Statutory auditors play an important role for both private and public companies:

Section 336 outlines the requirements for the statutory auditors' report
Section 393 requires statutory auditors to report potential category 1 or 2 offences to the Corporate Enforcement Authority

While both company types require audits, the scope and intensity of audit scrutiny are typically greater for public companies.

Mergers and Divisions: Different Rules for Different Company Types

The Act has specific provisions regarding mergers and divisions:

Chapter 3 on mergers applies only if none of the merging companies is a public limited company (section 462)
Chapter 4 on divisions applies only if none of the companies involved is a public limited company (section 486)

These provisions reflect how company combinations are regulated differently based on whether a public company is involved, due to the broader stakeholder interests at play.

Other Company Types: Beyond Private and Public Limited Companies

The Companies Act 2014 also addresses other company types:

Part 16: Designated Activity Companies (DACs) - a type of private company
Part 18: Companies Limited by Guarantee (CLGs)
Part 19: Unlimited Companies (ULCs, PUCs, PULCs)
Part 24: Investment Companies (which must be PLCs)

How Parts 1-14 Apply to Different Company Types

A key aspect of the Companies Act is how its general provisions apply across different company types:

Parts 1 to 14 primarily focus on private companies limited by shares
Section 1002 states that Parts 1 to 14 apply to PLCs, subject to provisions in Part 17
Section 1173 states that Parts 1 to 14 apply to CLGs, with modifications in Part 18
Section 1230 states that Parts 1 to 14 apply to unlimited companies, with specific provisions in Part 19

This structure demonstrates how the Act provides both general principles applicable to all companies while addressing the specific needs of different company structures.

Practical Considerations: Choosing Between a Private or Public Company

When deciding between establishing a private or public limited company, consider:

Access to capital: PLCs can raise capital by offering shares to the public and may be listed on a stock exchange, while LTDs cannot
Regulatory burden: PLCs face more stringent regulatory requirements when providing information to the public
Size and growth plans: Companies with ambitious growth plans might benefit from the PLC structure
Governance complexity: PLCs typically require more complex governance structures and a more qualified company secretary
Cost implications: Maintaining a PLC is generally more expensive than a private limited company
Liability protection: Both structures ensure that shareholders' personal assets are protected, as they are not personally liable for the debts of the company beyond their investment

When you register a company in Ireland, understanding these key similarities and key differences between public and private entities is crucial for making an informed decision.

Company Constitution

All companies require constitutional documents, though their form varies:

The constitution defines the company's relationship with the outside world
It also governs the company's internal affairs
For a PLC, these documents must comply with specific requirements in Part 17
The name of the company must clearly indicate its status (Ltd or PLC)

The number of shares a company could issue and their nominal value are defined in the constitutional document, with public companies facing stricter capital maintenance rules.

Conclusion: Making the Right Choice Between Private and Public Limited Companies

Understanding the similarities and differences between private and public limited companies is essential for making informed business decisions. The Companies Act 2014 provides a comprehensive framework that defines how these two company types operate, their requirements, and their limitations.

Whether you opt for a private limited company or a public limited company depends on your business goals, capital needs, and growth strategy. Both structures offer limited liability protection to shareholders, meaning that their personal assets are protected, but they differ significantly in terms of regulatory requirements, capital raising capabilities, and governance structures.

For most small to medium-sized businesses, a private limited company (Ltd) provides the right balance of limited liability protection with relatively straightforward regulatory requirements. For larger enterprises with significant capital needs and growth ambitions, a public limited company (PLC) might be the more appropriate choice, particularly if they seek to have their shares traded on a stock exchange.

The decision between these two types of companies has far-reaching implications for how a company is owned, operated, and regulated. Companies typically evolve over time, and what begins as a private limited company may eventually transition to a public company as growth and capital needs change.

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