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In this short post I will outline and explain some of the differences between IPO’s, PLC’s and LTD’s. These terms often used in economics and it is important to distinguish between them.
What is an Initial Public Offering (IPO)?
- An initial public offering, or IPO, is the very first sale of stock issued by a company to the public and is the process where a privately held company becomes a publicly traded company. Prior to an IPO the company is considered private, with a relatively small number of shareholders made up primarily of early investors (such as the founders, their families and friends) and professional investors such as venture capitalists. Until a company’s stock is offered for sale to the public, the public is unable to invest in it. You can potentially approach the owners of a private company about investing, but they’re not obligated to sell you anything. Public companies, on the other hand, have sold at least a portion of their shares to the public to which are traded on a stock exchange. This is why an IPO is also referred to as “going public.”
- Even after an IPO, publicly traded companies can revert back to being private entities if they so choose.
- Companies use this tool to secure capital through investments that are used to expand or improve the business, purchase assets, or provide a dividend to investors.
What is the difference between a Public Limited Company (PLC) and a Private Limited Company (LTD)?
- Both PLC’s and LTD’s have ownerships that are divided up into shares, which are owned by shareholders. However, shares of LTD’s are privately owned and are not traded on the stock exchange i.e. they cannot be offered to the general public. This is different to PLC’s whereby shares in a public company can be freely sold and traded to the general public and their shares can be listed on a stock exchange, meaning that anyone is able to become a shareholder. Public Companies can therefore raise money via IPO’s. Both PLC’s and LTD’s have limited liability. This means that the business has it’s own identity and owners are not personally reliable for any debts that the firm may have.
- A PLC is usually a large, well-known business. This could be a manufacturer or a chain of retailers with branches in many city centres. An LTD is often a small business such as an independent retailer in a market town. Most companies in the UK are LTDs.
- A private company must have a minimum of two shareholders and a maximum of 50. On the other hand there must be a minimum of 50 shareholders in a PLC.
- PLCs must also be incorporated with Companies House and form a constitution. Additionally, they must have a minimum authorized share capital of £50,000.