Going Public or Staying Private?

By Dr Georgina Tsagas, Consultant Solicitor, Simons Rodkin  Solicitors LLP, Bloomsbury London W1 and Finchley London N12.

For company law-related queries call 02071128841 and ask for Dr Georgina Tsagas or e-mail your queries directly at georgina.tsagas@sr-law.co.uk

A business decision with legal conditions and consequences

In the United Kingdom, the majority of companies are set up as private limited companies (Ltd). As private limited companies grow, however, shareholders and directors often consider the option of “going public”, meaning reverting to becoming a public limited company (Plc). The benefit of ‘going public’ however, meaning that the company will henceforth be able to raise capital through selling shares to the general public, does not come without a cost. Disclosure requirements and additional compliance requirements will apply to public companies. Therefore, in making such a business decision, it is important to be aware of the conditions to effect the change, a few of the key differences and the legal consequences that follow the change. Part 7 of the Companies Act 2006 allows for the change to be made by passing a special resolution and delivering Form RR01 to Companies House.

The Companies Act 2006 does not provide a provision that will clearly outline the key differences, other than section 4(1) and (2) in the Companies Act, which is strikingly unhelpful in this respect, as it basically provides that a public company’s certificate of incorporation must expressly state that it is a public company, otherwise, it will be regarded as a private company. Both types of companies have separate corporate personality, meaning that they are legally distinct entities with their own assets, profits and their own liabilities and have limited liability meaning that the personal finances of any shareholders are protected and limited to the value of their shares. Key differences between the two types of companies exist; however, what are they?

Section 755 Companies Act 2006 clearly states that only public companies can offer securities to the general public. A public company will normally offer its securities for sale on a regulated stock exchange (e.g. the London Stock Exchange (LSE) or Alternative Investment Market (AIM)) in order to raise finance for the expansion of its business. The two main forms of security that could be issued by a public company are either risk or loan capital. The former is the form of shares or ‘equities’ and the latter in the form of long-term ‘bonds’ or ‘debentures’.

Private limited companies only require one director, whereas two directors are required for public companies, as well as a Company Secretary with professional qualifications. Sections 761-763 and section 767 of the Companies Act 2006 also set out the minimum capital requirements that apply to public companies. The ‘trading certificate’ issued to public companies as a licence for their operation will only be issued if the condition is satisfied that the ‘authorised minimum’ value of its share capital is £50,000, or the prescribed Euro equivalent, with at least 25% being fully paid up, which will represent the company’s nominal value of its share capital, rather than its actual market value at any point in time. In terms of companies’ annual accounts, public companies have six months in which to file, whereas private companies have nine months. In terms of meetings, public companies are required to hold an annual general meeting, whereas it is at the private companies’ discretion if such a meeting is held.

If you have any company law enquires please call 020 7112 8841 and ask for Dr Georgina Tsagas or email georgina.tsagas@sr-law.co.uk