You may have heard about UK PLC in news reports focusing on the economy. The term often appears in articles discussing the nation’s economic performance. So what is ‘UK PLC’? Is it important? Let’s take a look.

What is a Public Limited Company, PLC?

Before getting into the meaning behind UK PLC, let’s quickly touch on the meaning of the acronym ‘PLC’.

A PLC is a public limited company. It’s the term given to an organisation that can offer to sell shares to the public. One way shares can be sold to the public is through a stock exchange.

Allowing members of the public to become shareholders is one of the fastest ways a PLC can raise capital. Raising capital is often key to supporting future growth. A PLC is legally separate in its own right.

Do note that the vast majority of businesses in the UK are not public limited companies. Limited companies and sole traders are far more common.

What does UK PLC mean?

Understanding that a PLC is a type of business can help you better understand the meaning behind this common phrase.

UK PLC is an informal term that refers to the collective performance of the United Kingdom’s economy as a whole. In other words, the term is often used by economic commentators when working on the unofficial basis that the UK is one large publicly limited company.

Of course, the UK isn’t a single company at all. However, by referring to the UK as a PLC, analysts may be better able to portray a message about the country’s economic performance.

Is UK PLC important?

The government measures the country’s economic performance by calculating the nation’s gross domestic product (GDP), which is a measure of collective output across the country. In other words, GDP is the total amount of products and services produced by the UK in a given year.

For example, when large organisations create several new jobs, it will probably boost the country’s GDP, given that it will likely increase productivity and output.

For an economy to grow under the GDP measure, the number of products or services the country produces must also grow.

What are the requirements for becoming a PLC?

There are a few requirements for a business to become a public limited company.

1. A minimum of £50,000 in share capital has to be maintained, sold and freely traded on a stock exchange. In the UK, the available exchanges are the London Stock Exchange’s Main market or the Alternative Investment Market for smaller businesses.
2. The firm must be registered with Companies House – a UK government agency for the Department for Business Innovation and Skills.
3. The company must have at least one director. Most PLCs will have at least two. The nominated directors must be between the ages of 16 and 70. And an individual cannot hold a director position if they are under a bankruptcy restriction order.
4. When a PLC is formed, its members must also agree to purchase (or ‘subscribe’) a minimum of £50,000 worth of shares. These shares may also have different characteristics, such as having voting and non-voting powers.

Advantages of being a PLC

The most significant advantage of registering as a PLC is that it grants businesses access to the stock market to raise capital by issuing new shares on an exchange. This can attract both retail and institutional investors to provide funding where debt is less favourable and a greater volume of capital can be potentially secured to fund future growth.

Having shares listed on a public exchange also increases the liquidity of existing shareholders who may want to sell part of or all of their stake in the business. This is fairly common when private equity investors want to exit their position after helping a private firm grow into a public one.

Disadvantages of being a PLC

While superior access to the capital markets can be powerful, it also comes with some caveats.

• As a PLC, companies must follow much stricter regulatory rules.
• The firms are required to hold annual general meetings open to all shareholders.
• The accounting standards and reporting requirements are also significantly greater.
• As shares are owned by the public, founders and managers can potentially lose control if they don’t own the majority of voting power.
• Rival firms can start buying shares on the open market to perform a hostile takeover.
• The value of a PLC’s shares can be volatile, especially during periods of economic downturn that can make raising fresh capital through equity less effective.

Key differences between a PLC and a Private Limited Company, LTD

Public Limited Companies and Private Limited Companies have some key differences, which we’ve already explored. As a private enterprise, shares in an LTD are not publicly available on a stock exchange. Therefore, if these firms wish to raise capital using their shares, management must approach investors directly, usually in the form of a private equity firm.

However, PLCs and LTDs have some similarities. Both types of businesses are required to register with Companies House and must have at least one director.

How did Covid-19 impact the UK economy?

According to the Office for National Statistics, the UK’s GDP was 7.8% lower in February 2021 than it was in February 2020, before the Covid-19 crisis began. This means that 7.8% fewer products or services were produced in February 2021 compared to the same month a year earlier.

Fewer goods and services produced due to Covid-19 meant the UK economy (or UK PLC) was shrinking. As we produced fewer things, we had less to sell or consume, making us all poorer.

Has the use of ‘UK PLC’ increased during the pandemic?

During the Covid-19 pandemic, the term has been used extensively by the media. This is likely because of the unprecedented economic stimulus the government has undertaken as a result of the crisis.

For example, analysts often mention that increases in unemployment rates and business closures have had a devastating impact on UK PLC. Furthermore, government plans to ‘Build Back Better’ have sometimes referred to boosting the balance sheet of UK PLC.

The post What is a UK Public Limited Company (PLC)? appeared first on The Motley Fool UK.

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