LTD vs PLC
If you are learning how to make money online you may need to eventually set up a business, dependable upon how big you are wanting to expand the business. This blog is going to be very useful to you to find out which company is best for you.
We all interact with various companies in our day to day lives, and if you are not interested in forming one, the chances are high that you might not be conversant with the details of these firms and their structures. However, some things can be noticed easily, for instance, the acronyms at the end of companies which are mostly LTD and PLC.
LTD stands for private limited company and PLC stands for public limited company. From the names of these firms, one noticeable difference between PLC and LTD is that one is public while the other is private. Well, it is not that straightforward, and this article will explain the details about these two types of companies. Read on;
What is A Company?
We all mention the word company from time to time without knowing what they are. Well, a company is an artificial individual that is developed by law. It is an association of people that have a different legal existence, perpetual succession, and seal. Its capital is transferred to shares which can also be moved, withholding certain conditions. Both the public and private companies have their advantages and disadvantages, and an entrepreneur needs to pick one based on his plan to fund it.
What Is A Private Limited Company?
As the name states, this is an entity that is held by private owners. This company restricts the owner’s liability to their own part and does not allow shareholders to trade shares publicly. These companies are independent and have their profits, assets, and liabilities.
As it has been mentioned, the personal assets of the shareholders are safe due to the limited liability feature. They need to be incorporated by the Companies authority and need to get some legal documents before they can be formed such as the Article of Association and Memorandum of Association.
Advantages Of A Private Limited Company?
- Members: The benefit of this type of company comes when forming it and looking for members to do it. You can start a private limited company with a minimum of only two members and a maximum of 200 based on the provisions of the law.
- Liability: It has been mentioned that the shareholders of this company enjoy limited liability. This implies that if the company gets into bad debt or runs into losses, they will only be obliged to sell their company shares and all their personal belongings will be safe.
- Perpetual Succession: A private company has perpetual succession in that its existence is not tied to the presence of the people who formed it. If the owner or shareholders die, become bankrupt or leave the company, it will continue to exist, and the shares will be transferred to another entity.
- No Prospectus Needed: A prospectus is a document that is issued by a public company. It is used to explain this scenario and invite members of the public to come and buy shares. However, this does not happen with private companies since the public is not allowed to subscribe for the shares.
- Director Count: A private company needs only two directors as specified by the law. One of them should sit on the board, and a shareholder can also be a director.
Disadvantages Of Private Companies.
- One of the main demerits of these companies and the difference between PLC and LTD is that their shares are not public and cannot be sold or transferred to another entity freely.
- All the shareholders need to agree on whether they should transfer or sell the shares before it is done, something that complicates the process.
- The other con is that the public cannot be invited to subscribe to the shares.
- Lastly, the acronym Ltd should be mentioned at the end of the name.
What Is A Public Limited Company?
These companies are similar to the private ones in some way since they are legally independent entities with their own profits, liabilities, and assets. However, the shares of a PLC can be sold to the general public, and they can also be listed on the stock exchange. These are the only companies that are allowed to raise capital through this form of public investment.
Advantages Of A Public Limited Company?
Members: Unlike the private company, this one requires a minimum of seven members for you to form one. There is no limit the maximum number of people.
Liability: The company formed is a different entity, and the shareholders enjoy limited liability. Their assets are completely safe in case of bankruptcy of bad losses.
Directors Count: A board of directors leads public companies, and it should contain a minimum of three directors and a maximum of fifteen. The shareholders elect these directors during the AGM and the representatives that get elected act as the leaders of the company and help to manage it and make top decisions. It is therefore in the best interests of the shareholders to have a bigger board for it to boost transparency.
Public Transparency: Public companies are directed by the law to be very open, and they need to publish their detailed financial statements to the public every year. This is required to assess the financial position of the company especially by the shareholders and potential investors.
Capital: A public company can raise capital by selling shares to the public. Their shares are issued in the stock market. They can also raise money by issuing debentures and bonds. The shares of the public company can be transferred among the shareholders and stock market traders.
Disadvantages Of Public Companies.
One problem of being public is that you are required to issue a prospectus to invite the public to subscribe to your shares.
Public companies also face a lot of scrutinies since they are regulated by various government authorities, which affect the management of the company. Companies lose privacy since they are required to report several things such as financial position, compensation, and business operations regularly.
The difference between PLC and LTD have been mentioned through their features, advantages, and disadvantages. Most companies start as private and become public, and this is due to the ability to raise capital by selling shares to the public. However, the laws are stricter for these public companies, and they are only a suitable option for matured companies.