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PLC officially stands for Public Limited Company. Compared to private companies, where shares would require an agreement from other shareholders to be sold, in a PLC shares may be sold and traded freely by the general public. Although it’s possible to hold an unlisted PLC, a PLC must have a minimum share capital of £50,000, with at least 25% paid up and can be listed on the stock exchange. A large portion of unpaid share capital is often the result of these requirements.
The PLC needs to be run by a minimum of two directors plus a company secretary. The criteria for being a director is the same as that of a private limited company, but there are additional criteria upon reaching the age of 70. A special resolution is required to re-appoint directors to the board.
How does PLC status affect the insolvency process?
There are fairly subtle differences in the insolvency processes for a PLC, but they’re crucial to the proceedings leading up to the insolvency. In the case that the PLC is listed on the London Stock Exchange, notice must be given to the London Stock Exchange immediately upon:
- Presentation of a winding up petition against the company.
- The appointment of an administrator or receiver.
- The board passing a resolution to seek a winding up resolution from its members.
Upon receipt of this notification, trading will be suspended, thereby representing the crystallising of the membership. The same provision applies to unlisted PLCs, except without the London Stock Exchange getting involved.
A PLC is much more likely to carry additional restrictions with regards to winding up or administration resolutions passed by the board. For example, they may require that specific shareholders or classes of shareholders be consulted and involved in the decision-making prior to the board passing these resolutions.
The next stage is that which entails the shareholders being required to pass the necessary resolutions to place the company into voluntary liquidation. As is the case with private companies, 75% of the shareholders would be required to pass a winding up resolution. Since it’s a special resolution, it’s possible for a minority of shareholders to vote down the resolution. Since the number of shareholders in a PLC are often much higher and a large portion of the company’s nature is not involved in the day-to-day business operations, there is a much higher risk of dissent amongst shareholders. As a result, administration often becomes a more appropriate procedure for the company to have to undergo, being that the procedure is commenced by the directors as opposed to the members.
The effects of insolvency on unpaid share capital
Since only 25% of the called up share capital is required to be paid up, when buying into a share issue, members would only need to pay 25% of the value of the shares they’ve bought, along with the balance of any share premium. As a result, large amounts of unpaid share capital can be left within the company. Shareholders are not entitled to receive dividends until their share capital is fully paid up. So, in established companies they are more likely to pay the full amount, whereas younger businesses may have them waiting before investing the full amount in the company.
However, in the event of voluntary liquidation or administration, any unpaid share capital becomes the business’s asset. The administrator or liquidator will review the members register upon appointment and write out to all members with unpaid share capital to settle the payment of the balance. Members become a debtor of the company in such circumstances and the balance is duly payable. So if you hold unpaid share capital, the debt can be enforced through the courts by the insolvency practitioner if you fail to make payment on request.
If your public limited company is suffering from financial difficulties, you can get a free initial consultation from some top business rescue experts to help provide you with a way forward.