Introduction
Most companies are private limited companies. A smaller number are public limited companies. Only a small sub-set of public companies are listed on the Official List and traded on the Main Market of the London Stock Exchange.
The BLP module of the LPC focuses for the most part on private companies.
It is important for you to be aware from the outset, however, of the concept of public companies and, in particular, listed companies. Listed companies are run very differently to private companies since they may have thousands of shareholders, only a few of whom will have any managerial role at all. They therefore require far more regulation than private companies and even public unlisted companies.
In a listed company, an individual shareholder will not normally have any access to the board and additional regulation is needed to ensure the accountability of the directors.
Companies Act 2006 – Different levels of regulation
There is a significant degree of similarity between the way in which the Companies Act 2006 (CA 2006) applies to the smallest private company and the largest public listed company. Essentially the same legislation governs both types of companies, though with refinements to cater for the differences between the one-person private company, for example, and Vodafone (one of the largest listed companies).
While there are similarities, there are also important differences. Generally speaking, private companies enjoy lighter regulation under CA 2006 than public companies. One of the aims of the CA 2006 reforms was to make it easier to set up and run a private company.
A straightforward example is the fact that private companies do not need to hold an annual general meeting. Two other important differences are set out below, concerning offering shares to the public and written resolutions.
Offering shares to the public
Private companies
Private companies are generally prohibited from offering their shares to the public at large (s.755 CA 2006). An ‘offer to the public’ for these purposes is defined in s.756 CA 2006. The prohibition applies to shares or bonds (i.e. debt securities).
Public companies
As the business of a private company gets larger and more successful, its shareholders may decide that the company requires further equity and debt finance. If the company re-registers as a public company it will then be able to apply for a listing (for example via a flotation on the London Stock Exchange) in order to access a much wider investor base. A listed public company also has greater access to the international debt capital markets for the issuing of debt securities.
However, the fact that a company is registered as a public company and has ‘plc’ after its name does not indicate that the company is listed. Most public companies are not listed.
Written resolutions
One important administrative benefit enjoyed by private companies (but not public companies) is that their shareholders can pass shareholder resolutions using the written resolution procedure under s.288 CA 2006. Public companies cannot use this procedure. The written resolution procedure can be a very convenient, and sometimes time saving, method of passing shareholder resolutions and avoids the need for a general meeting.
The CA 2006 made the written resolution procedure easier to use for private companies. Under the Companies Act 1985 (CA 1985) any shareholder resolution passed as a written resolution had to be agreed to by all the shareholders (unanimous consent). Under the CA 2006, there is no such requirement and therefore an ordinary resolution can be passed by a simple majority of the total voting rights of eligible members (s.282(2) CA 2006) and a special resolution can be passed by a majority of not less than 75% of the total voting rights of eligible members (s.283(2) CA 2006).
Note, however, that the relevant percentages for passing shareholder resolutions as written resolutions are percentages of all the eligible members (i.e. all those shareholders entitled to vote), whereas when a vote takes place at a general meeting, it is only necessary to take into account the votes of those shareholders who actually vote.
This change has resulted in considerable cost, time and administration savings for many private companies although such companies can still call general meetings if they prefer.