PLC explained - what is a public limited company?
A PLC, or public limited company, is an entity with shares available to purchase by investors. The biggest companies in the UK are PLCs, including every firm listed on the London Stock Exchange. Below we look at the requirements for public limited companies, and how you can invest in PLCs.
If you look at a list of the companies in the FTSE 100 Index, all have ‘PLC’ after their name.
But what is PLC? PLC stands for public limited company and is the UK equivalent of Co. or Inc. in the USA.
These are companies with shares that can be bought by the general public, and are owned by shareholders. If you own a share in a PLC, you therefore own a portion of that company.
Read on to find out more about the rules surrounding public limited companies, their traits, and how you can invest in them.
» MORE: How to start investing
Public limited company definition
Though PLCs include many of the biggest companies in the UK, the rules around forming public limited companies allow for smaller entities to gain that status as well.
To become a public limited company:
- You need a minimum of two shareholders.
- You need a minimum of two registered directors and a fully-qualified company secretary.
- You need to issue share capital worth at least £50,000.
- The name of your company must end with ‘PLC’ or, in Wales, ‘ccc’.
Anyone that buys shares in a PLC has limited liability. This means that shareholders only stand to lose the amount they paid for their shares, regardless of any other losses the business incurs.
Once incorporated as a public limited company, this doesn’t mean its shares will all of a sudden be widely and easily available to purchase.
For that to happen, a PLC would need to list on the London Stock Exchange via an IPO or direct listing. However, this isn’t a requirement of being a PLC.
» MORE: What is an IPO?
Public limited company examples
While not every PLC is listed on the London Stock Exchange (LSE), every company listed on the London Stock Exchange is a public limited company.
Within the LSE there are various indices on which different companies reside. The FTSE 100 contains the 100 largest companies by market cap and includes high-profile names such as BP, Shell, AstraZeneca, HSBC and JD Sports.
Meanwhile on the FTSE 250, there are typically more domestic firms such as easyJet, Aston Martin, Cineworld, Domino’s Pizza and more.
Other more growth-stage companies are listed on the Alternative Investment Market (AIM) such as ASOS, Boohoo and Fever-Tree.
Advantages of a public limited company
There are a number of tangible and intangible benefits that come with being and investing in a public limited company. These include:
- The ability to quickly raise capital by selling shares, which can then be used to fund, for example, new projects and further expansion.
- The increased liquidity for investors, i.e. transferability, of shares for listed PLCs.
- The limited liability of being a shareholder in a PLC.
- The enhanced prestige and confidence with which public limited companies are viewed.
- A greater willingness on the behalf of banks to extend finance to PLCs.
Disadvantages of a public limited company
Before incorporating as a public limited company, especially as a listed PLC, there are a few disadvantages to consider. These include:
- A far greater level of regulation, including the need to have transparent and publicly accessible accounting, and the requirement to hold AGMs (annual general meetings).
- The expense to set one up, including specialist advisers and lawyers.
- The need to keep shareholders happy in order not to negatively affect share price.
- The general, external volatility that comes with being part of the stock market.
- The risk of hostile takeovers.
How to invest in public limited companies
Since investing in a public limited company is essentially investing in the stock market, there are a number of different approaches you can take.
If you want to select specific PLCs to invest in, then you could consider opening an online brokerage account.
This will give you access to a share dealing platform where you can buy and sell shares in LSE-listed public limited companies or trade a UK-focused index fund.
» MORE: What is an index fund?
If you would like help in picking which PLCs to invest in, then a managed brokerage account might be for you. Here, an investment manager will design a portfolio and make the investments for you.
An alternative to a managed brokerage account is a robo-adviser account. Based on certain criteria you select, you will then be offered a number of ready-made portfolios to invest in.
You may already be investing in PLCs without realising it. When you and your employer pay into a workplace pension, you are investing in the stock market.
Therefore, depending on the make-up of the pension fund in question, you will be investing in public limited companies.
» MORE: What is a workplace pension?
Stocks and shares ISAs
Similar to brokerage accounts, there are both do-it-yourself and managed versions of stocks and shares ISAs, depending on your investing experience.
Regardless of which version you choose, it is possible to invest in PLCs as part of your ISA.
WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.
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Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more