Publications - Corporate



			Publications - Corporate A Summary of Principal Differences Between Public and Private Companies Introduction The aim of this note is to highlight to the reader some of the principal differences between public and private companies outlined in the Companies Act 1985 (as amended) (the "Act"). The note is however, not intended to be exhaustive. What is a public company? A public company is a company which:- has a share capital; has members who enjoy limited liability; is described as such in its memorandum of association (a constitutional document); and has complied with the registration requirements for public companies set out in the Act. A company which is not a public company is a private company. Name The name of a public company must end with the words "public limited company" or the abbreviation "plc", "Plc" or "PLC" or Welsh equivalent. The name of a private company must usually end with the word "limited", the abbreviation "Ltd" or Welsh equivalent. Directors and secretaries A public company must have at least 2 directors. A private company need only have 1. At a general meeting of the shareholders of a public company the appointment of each director must be voted on separately unless the meeting has unanimously authorised group appointments. This is not necessary for a private company. The secretary of a public company must be suitably qualified with the required skills and experience to fulfil the role (often the secretary has a recognised professional qualification). Share Capital A public company's authorised share capital must be at least £50,000 and it must have at least 2 members. There is no minimum capital requirement in respect of private companies which may have a single member. The subscribers to the memorandum of a public company must always pay for the shares they agree to take in the memorandum in cash. This is not so for a private company A public company incorporated as such (as opposed to a private company which re-registers as public) needs a "trading certificate" before it can start business or borrow. A private company can start business and borrow as soon as it receives its certificate of incorporation. To obtain a trading certificate a public company must demonstrate that the nominal value of its allotted share capital is not less than £50,000 and that at least 25% of that nominal value and the whole of any premium on such capital is paid up. Allotments A public company can only make an allotment of shares if at least 25% of the nominal value and the whole of any premium are paid up (except in specific instances involving employee share schemes). A private company can allot shares nil paid, partly paid or fully paid. The Act requires that new shares to be issued for cash by a company must be offered proportionately to its current shareholders, this is known "pre-emption" and allows shareholders to maintain their stake in the company. Whilst a private company may generally exclude the operation of this rule by including appropriate wording in its memorandum or articles, a public company may not. Notwithstanding this, both private and public companies are able to dis-apply the rule in specific cases. When shares have been offered for subscription by a private company, allotments may be made pursuant to that offer even though subscriptions have not been received for all the shares offered. A public company may not do this unless specific conditions are satisfied. A public company may not accept an undertaking to do work or perform services in payment or part payment for shares. No such restriction applies in relation to a private company. A public company must not allot shares otherwise than for cash if the consideration is or includes an undertaking that will or may be performed more than 5 years after the date of allotment. No such restriction exists in relation to a private company. If a public company issues shares for non-cash consideration, such consideration must usually be valued by an independent person within the 6 months before the allotment and a copy of the valuation sent to the allottee. No such valuation is needed for a private company. A public company must obtain an independent valuation of any non-cash assets acquired within 2 years of the issue of its trading certificate from the subscribers of its memorandum where the consideration for the transfer to be given by the company is equal in value at the date of the agreement to 10% or more of the issued nominal share capital. Share Transfers Whilst the rules governing the transfer of shares are the same for both public and private companies and the articles of association of both a private and an unlisted public company can restrict transfers of shares to approved transferees, a quoted public company, must comply with the relevant listing rules. Maintenance of Share Capital If the value of a public company's net assets falls below 50% of its called up share capital, the directors must convene a meeting of its shareholders. No similar obligation applies to the directors of a private company. The Act requires the disposal or cancellation of public company shares in certain circumstances (including when they are forfeited or surrendered for failure to pay sums due or in specific instances when the company acquires a beneficial interest in them). Restrictions limit the extent to which a public company may take charges over its own shares. Interests in shares The directors of a company are obliged to notify the company in writing of their interests in shares (and debentures) of the company and its group. The company must maintain a register of such interests. Any person (not just a director) who is interested in shares of a public company carrying full voting rights has obligations as regards the disclosure of his interests to the company and the company must maintain a register of such interests. A distinction is drawn between "interests" and "material interests". Interests are not material interests if they are held by various people listed in the Act who manage investments for others. A person who has a material interest in a public company's relevant share capital has a notifiable interest when the total nominal value of the shares in which he has a material interest is 3% or more of the nominal value of relevant share capital. A person who has no notifiable interest under the preceding paragraph, will have a notifiable interest where the total nominal value of the shares in which that person has interests (whether or not material) reaches 10% or more of the nominal value of the relevant share capital. If a persons interest in the relevant share capital of a public company:- becomes a notifiable interest; or stops being a notifiable interest, or remains a notifiable interest but is changed by at least one percentage point, notification in a prescribed form must be made within 2 days. A public company has power to require people to disclose details of their past or present interests in its shares. A private company has such power. Fair dealing by Directors Generally, the directors of a private company operate with less restriction in their financial dealings with their company and are subject to less onerous disclosure obligations in their accounts than directors of a public company. A company is prohibited from making a loan to a director of the company or its holding company and from giving any guarantee or security for a loan made by any person to such a director, but loans of less than £5,000 are permitted. A public company (or a company which has a public company in its group) is also prohibited from making any quasi-loan to or entering into any credit transaction for a director of the company or its holding company, from making any loan or quasi-loan to or entering into any credit transaction for any person connected with such a director and from giving any guarantee or security for a loan or quasi loan or credit transaction made by any person to such a director or connected person. A quasi-loan is a payment made by the company on behalf of a director. There is an exception for quasi-loans to directors below £5,000 requiring reimbursement within 2 months and credit transactions with a director or connected person where the amount involved is less than £10,000 or the transaction is in the ordinary course of the company's business. Distributions (including dividends) A company may only make a distribution out of profits available for the purpose. A public company may only make a distribution:- if at the relevant time the amount of its net assets is not less than the total of its called up share capital and undistributable reserves; and if and to the extent that the distribution does not reduce the amount of those assets to below that total. Elective and Written Resolutions Only a private company can rely on the Act with regard to the use of the written resolution procedure to pass a resolution without the need to hold a general meeting of its shareholders. Only a private company can pass an elective resolution for the purposes of:- increasing the duration of the directors' authority to allot shares; dispensing with the requirement that accounts be laid before the general meeting of the company; dispensing with the holding of an AGM; reducing the majority required to allow the holding of meetings at short notice from 95% to 90%; dispensing with the requirement to appoint auditors each year. Accounts and Audit The accounts of a public company must be delivered within 7 months of the end of the accounting reference period rather than the 10 months permitted for a private company. Accounting records for a public company must be kept for 6 years rather than the 3 years required of a private company. A public company cannot be a small or medium sized company for the purpose of being permitted to file modified accounts. This also applies to a group of companies, one of whose members is a public company. A public company is sometimes able, to send a summary financial statement to those would otherwise be entitled to receive a copy of its accounts. Financial Assistance Whilst there is a general prohibition on any company giving financial assistance for the purchase of its own shares, exceptions to the rule do exist. Public companies cannot take advantage of the "whitewash" procedure available to private companies in respect of the authorisation of financial assistance. In the case of a public company as well as coming within one of the defined exceptions to the rule, financial assistance can only be authorised in certain cases if the company has net assets which are not thereby reduced or, to the extent that the net assets are reduced, if the assistance is provided out of distributable profits. Purchase of own shares A resolution made by the shareholders of a public company giving it authority to make an off-market purchase of its own shares must specify the date on which the authority is to expire and this must not be more than 18 months from the date of the resolution. This limit on the duration of the authority does not apply to private companies. If a company agrees to purchase its own shares it must keep a copy of the contact (if it is in writing) or a summary of the contract terms (if it is not) for 10 years. A public company must also make these documents available for inspection by the general public. Whilst a private company has the power to purchase its own shares out of capital a public company does not. The City Code on Take-overs and Mergers The Code applies to offers for all listed and unlisted public companies considered by the Panel to be resident in the UK, Channel Islands or Isle of Man. It does not apply to Open -Ended Investment Companies. Although the Code may apply to private companies that are so resident if :- the company's equity share capital has been listed on the Stock Exchange at any time during the previous 10 years; or dealings and/or prices at which persons were willing to deal in the company's equity share capital have been published by whatever method on a regular basis for a continuous period of at least 6 months in the previous 10 years; or the company's equity share capital has been subject to a marketing arrangement as described in the Act at any time during the previous 10 years; or they have filed a prospectus for the issue of equity share capital with a registrar of companies at any time during the previous 10 years; waivers of the requirements of the Code may be sought from the Panel. Written July 2001. Reviewed January 2002. 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