To PLC or not to PLC? - that may be the question
Prestige versus regulatory burden
We recently acted on the merger of several well established private companies. The suffix "public limited company" or "plc" for the name of the new holding company was very attractive. But, we were asked, what additional regulations are imposed by the Companies Act 2006?
Start up capital
The plc must have issued capital of at least ?50,000. CA s763. Also, shares may not be issued nil paid; they must be at least quarter paid up ie ?12,500. CA s586. If incorporating the plc (rather than converting an existing limited company) it may be possible to contribute assets rather than cash if this does not breach CA s761 (no business before registrar issues trading certificate); otherwise cash will be required.
A plc may not issue shares in exchange for services. Further, except for issues for cash or on a share for share exchange, a plc must obtain an independent valuation of the asset being contributed in exchange for the new shares. CA s593.
Eliminating issued shares
The plc may not purchase or redeem shares in its own capital except to the extent its accounts show at least the cost of doing so in the form of distributable reserves. Not so for private companies. CA s709. The private company may also reduce its capital (ie cancel issued shares) without using a lengthy (and expensive) court procedure. CA s642.
Assisting the buyer on sale of the plc
A plc and its subsidiaries cannot assist a buyer of the plc's shares, eg by guaranteeing to bank the buyer's repayment of acquisition finance. CA s678. The law for the ltd is now much more accommodating.
A plc may not make a distribution if the amount of its net assets is less than the value of its share capital; nor may it do so if the distribution would reduce the net assets to less than that value. CA s831.
The provisions enabling small and medium-sized companies to file abbreviated accounts (CA ss444 and 445) do not apply to the plc. The period permitted for filing is only 6 months (9 months for the ltd). CA s442.
The plc may not use signed documents to pass shareholder resolutions. CA s288. The plc must:
- hold agms - CA s336
- lay accounts in general meeting - CA s437
- if auditor required - appoint annually - CA s489
- have a company secretary - CA s271
- have at least two directors - CA s154.
Takeover code on sale of the plc
Even if the plc has not ever had its shares listed on a public market the City Code on Takeovers and Mergers applies to it. On an intended sale the directors must apply to the Takeover Panel Executive for a waiver if the code, with all its complexities, is to be disapplied. Getting a waiver is not a certainty. Fulfilment of conditions may be called for. Informed written consent from each of the shareholders in favour of the Panel will always be a requirement.
Try to evaluate the reduced corporate flexibility and the additional accountancy, legal and admin costs. Does the prestige of the plc suffix outweigh all this?