Public Company

A public company is conceptually identical to a private limited company but will generally have a higher minimum capitalisation requirement, no limitation on the number of members, the ability to be listed (or floated) on a stock market, increased reporting requirements, greater anonymity of ownership and may be desirable from a reputational point of view where the client feels that a Plc is more substantial than a private limited company (Ltd or Limited). Since public limited companies generally attract much higher fees and increased reporting and capitalization requirements unless there is a specific need for one it is preferable to use a private limited company in most cases.

Similarities with Private Limited Companies Limited Liability The Limited Company has been the principal means of conducting business for the last two hundred years. Their enduring success is the result of their ability to ring-fence liability and thereby protect the assets of their owners and managers from the liability of their own activity. This characteristic is referred to as “limited liability” and can also be used to, for example, separate the assets between a high business risk activity and a lower risk area. This is the main distinction between an incorporated entity such as a company and a sole trader. This is the case for both private and public companies. Separate Legal Identity Limited companies have their own identity, they can own property in their own name, open bank accounts, conduct business, sue and be sued and provided they are operated legally the liability of the company will remain limited to its own assets so any assets held by the owners and managers will not be forfeit in the event of the company being sued. They are also taxed as a legal person. This feature of limited companies mean that they will continue to exist indefinitely notwithstanding the death or insolvency of directors or shareholders.

Taxation
Limited companies pay corporation tax. The rate varies from country to country. A company will generally be required to pay tax in the country where it is registered as well as the country where the directors operate the company (if different). It is for this reason that many clients using low tax or no tax companies appoint directors who are either nominees without any discretion following instructions or who may have discretion in the operation of the company. Many countries tax different types of income at different rates (trading income may differ from income from underlying investments for example) but the main characteristic of companies in countries with developed financial service industries is the favourable rate of tax which may be 0%. This may either be a national rate of 0% in all cases or it may be that companies with foreign owners or non-local operation (often called International Business Companies or IBCs) may be taxed at a preferential rate. A difference in tax treatment for local and foreign companies is the defining characteristic of an offshore centre.

Ownership and Management
Limited companies are owned by either a single shareholder or a group of shareholders and are operated by either a single director or a board of directors which are appointed by the shareholders and who deal with the day to day business for the benefit of the shareholders. Limited companies sometimes also have a company secretary who assists the directors with legal and administrative matters. Some countries use other titles such as ‘president’, ‘CEO’, ‘Chairman’ etc. though the concept remains the same. The directors of a company will often delegate some of their authority to managers or committees. The shareholders are not involved in the operation of the company except once a year at the Annual General Meeting (AGM) to approve the actions of the directors or where their input is required at Extraordinary General Meetings (EGMs)  on exceptional matters which could adversely affect their ownership and fall outside of normal day to day trading (such as the issuing of new shares or stock or the change of the purpose of the company). Shares can be separated into classes affording different rights to different types of investors (such as rights to dividend, rights to capital on liquidation and voting rights), in this way founders can raise finance whilst maintaining control of their company. This feature of companies makes them highly flexible in their ownership and distribution of their proceeds.

Reporting
Companies usually have to file an annual return to the registrar of companies. What is contained in this return, whether or not it is public record and what other changes in the life of the company require filing varies from country to country. Companies also generally have to prepare accounts, or at least keep accounting records. The standard to which these accounts must be prepared, whether or not they must be filed and whether or not they must be audited varies from country to country.

Increased Reporting
PLCs generally (though not always) have increased reporting requirements compared with private limited companies, this may be in terms of how much they need to disclose on their annual returns, how much of this information is public and in terms of the formalities which must be followed in order to make changes to the company. Depending on the country where the Plc is registered it is generally the case that accounting requirements are more strict and may require an audit where a private company would be exempt.

Anonymity of Ownership
Despite the above increased reporting it is sometimes possible to achieve a greater degree of anonymity with a PLC than may be possible with a private limited company. There are two reasons for this: firstly, a PLC having many members may be able to submit abridged information in its annual return and accounts; and, secondly, when dealing with banks and other institutions their Anti-Money Laundering (AML) and Know Your Client (KYC) rules may be less onerous when dealing with a public company since they may perceive it to be in wider ownership than they can reasonably be expected to determine. This was historically a common use of PLCs however in most cases AML and KYC rules are now applied in such a way as the vehicle used is irrelevant.

Reputational Considerations
​Some clients feel that a PLC has a more substantial reputation than a limited company and may foster confidence in the company from third parties such as investors and trade creditors. This historical difference in reputation is due to the increased capitalization and reporting requirements associated with PLCs which, in reality, may or may not be applicable depending in which country the PLC is registered.

Avoidance of Controlled Foreign Corporation (CFC) Rules
Most countries attempt to some degree to tax and regulate foreign companies which they feel are being used to avoid tax due to them or which they feel falls within their remit due to being operated within their borders. The principle basis for these rules is the location of the management; specifically where the directors spend the majority of their time. Therefore a company incorporated in country A may also be taxable in country B if the directors spend most of their time there. Where companies are taxable in more than one country there may be dual taxation arrangements in place however if one of the countries is a low or no tax area this is likely to defeat the tax planning reasons for which the company was established. Various methods have been used to attempt to avoid this situation with different degrees of success. The method of simply holding board meetings in the country of incorporation is, for example, likely to be ineffective in almost all cases. The method of appointing local directors may, if the company is operated properly, be effective in avoiding CFC rules based on management alone. More sophisticated anti-avoidance rules may seek to attack a foreign company by claiming it lacks substance and is wholly or mainly artificial and therefore should be ignored for tax purposes. For information on creating local substance please see our main article on business incubation. These sophisticated systems may also base taxation of foreign companies not simply on their management but also on their ownership and voting rights on the basis that the shareholders having the right to appoint and remove the board of directors are effectively in control of the company, in these cases a Foundation or Company Limited by Guarantee may be considered.

Administrative Differences Between Countries Unlike private limited companies (Ltd’s) there are considerable differences from one country to the next regarding the formation and operation of PLCs. These differences are far reaching and include rules about disclosure, minimum capitalization requirements, timescale to formation and many other matters which vary greatly from country to country. These differences are addressed in the country specific section of the PLC pages. Factors Concerning Choice of Country The three main considerations are likely to be taxation rate, administrative obstacles and reputation. Reputation and tax rates are often linked. For example companies from some countries are treated with suspicion and may attract unwanted attention from tax authorities or even social stigma. For this reason many clients prefer to pay some tax rather than opt for a 0% regime. Unlike in the case of private limited companies administrative differences are an important factor because reporting and capitalization requirements vary greatly from country to country as outlined above. Other factors affecting the choice of country may include the  regulatory infrastructure, time zone, languages and availability and skill of human resources (if applicable).

Alternatives
If the purpose of the Plc is reputational then there is not really any suitable alternative though a foundation may be considered.