Got a new business idea and you are about to roll that? Before you get into this, one of the first and most important decisions is choosing the right company structure. Among the various options, a limited company (Ltd) is a popular choice due to its legal protections and credibility.
A limited company is a type of business structure where the company exists as a separate legal entity from its owners and the company itself, instead of the individuals running it, is responsible for any debts and liabilities. The term “limited” states limited liability, meaning shareholders are only at risk of losing the money they have invested and their personal assets are safeguarded.
INVESTOPEDIA
All limited companies are not the same in terms of requirements and scale. The two main types are Private Limited Companies (Ltds) and Public Limited Companies (PLCs) offering their own distinctive advantages, requirements, and operational differences.
Both owners and investors need to understand the difference between these two main types of companies that will be helpful in long-term decisions. As an Entrepreneur, this choice will impact funding options, ownership control, and regulatory requirements while as an investor, knowing how these companies operate helps in assessing risks and making informed financial decisions.
In this post, we will go into the details of PLCs vs. Ltds in the simplest way possible to help you out in right decision.
What is a Public Limited Company (PLC)?
A Public Limited Company (PLC) is a business entity that offers its shares to the general public through stock exchanges and private placements. The company operates under the regulatory framework of the Security and Exchange Commission of Pakistan (SECP).
The PLC must have at least three shareholders and there is no maximum limit on the number of shareholders. The company is listed on the stock exchange and the general public can buy and sell its shares.
The business structure exists separate from its owners, unlike sole proprietorship and partnership, and this protects the companies from liabilities and debt because the company is limited to the face value of the shares the person owns.
Which Type of Businesses Should Choose PLC?
PLCs are ideal for large-scale businesses that require significant capital investment and aim to expand rapidly. Becoming a public entity promotes transparency and allows the owners to raise the required funds quickly.
Some of the biggest public limited companies in Pakistan include:
- Engro Corporation
- Habib Bank Limited
- Pakistan Petroleum Limited
- Pak Datacom Limited
What is a Private Limited Company?
A private limited company is one of the most common forms of company incorporation in Pakistan. The type of company is privately owned and operates as a distinct legal entity to its directors and shareholders. The company’s profits, liabilities, and business assets all belong to itself, limiting the risk for founders and investors.
A Pvt Ltd needs at least 2 shareholders with a maximum of 50 members, moreover, the company can open as many offices in Pakistan as it wants. Compared to public limited companies, it has fewer regulatory requirements and there is a minimum capital requirement of PKR100,000 for forming a Pvt Ltd company in Pakistan.
Who Should Choose a Private Limited Company?
This business entity is most suitable for small and medium-sized businesses looking for corporate status or family-owned enterprises and startups pursuing limited liability protection.
Some popular private limited companies in Pakistan include:
- SAMI Pharmaceuticals (Pvt) Ltd
- Bank Alfalah
- Khaadi (Pvt) Ltd
Private LTD vs Public LTD Company – Quick Comparison
| Features | Private Limited Company | Public Limited Company |
| Minimum Number of Members | 2 with a maximum of 50 | 3 with no maximum limit |
| Ownership | Owned by founders, executive management, and private investors | Owned by founders, management, and public shareholders |
| Transfer of Shares | Transfer of shares of a private company is restricted by its articles | Shares are freely traded on the stock exchange without the consent of other members |
| Minimum Share Capital | No mandatory minimum share capital requirement | Minimum capital of PKR 1 million, with at least 25% paid up |
| Public Invitation | Cannot invite the public to but its shares | It is allowed to invite the public to buy shares |
| Business Commencement | It can commence immediately after receiving the certificate of incorporation | A public company has to receive a certificate for the commencement of business from the registrar before starting |
| Listing on the Stock Exchange | Cannot be listed on the stock exchange | Are listed on the stock exchange |
| Statutory Meetings | Optional | Compulsory |
| Profit and Loss Accounts | Pvt Ltd is not required to send copies of its balance sheet and profit and loss account to the registrar | PLC is required to send its balance sheets, profit and loss account, and other documents to the authorities |
| SECP Regulations | Moderate regulations | Strict compliance requirements |
| Capital Raising | Funds are raised through private sources (VCs, loans, etc.) | Capital raised by selling shares |
| Decision-Making | Control by founders or a small group of stakeholders | Influenced by shareholders, board of directors, and regulations |
| Risk & Liability | Stable and not exposed to stock market volatility. | Subject to market fluctuation and public scrutiny |
1. Ownership
Private companies are owned by founders, executive management, and private investors. On the contrary, a Public Limited Company is owned by members of the public who purchase company stock. Moreover, people within the company who possess shares of the company stock.
Public shareholders are not involved in the company in any way, but shareholders within the company can impact the management and operations of public companies.
2. Share Trading
Shares of public companies are freely traded on the stock exchange making it easier for investors to buy and sell stocks. The company only has to comply with stock exchange regulations.
Private limited companies are not publicly traded and cannot be sold freely. Shareholders have to follow specific agreements and approval processes to transfer shares. It ensures greater control over the ownership.
3. Capital Raising
Raising capital is comparatively easier in the case of public limited companies. They raise capital by selling shares in the public marketplaces and reaching out to potential investors.
Funds raising in the Pvt Ltd is limited to private sources like angel investors, venture capitalists, and private investors. They can also raise funds by getting loans from financial institutions.
4. Regulatory Requirements
The public limited company faces strict regulatory requirements like mandatory audits, financial disclosures, board meetings, and compliance with stock exchange rules. PLCs have to publish annual reports and financial statements to maintain transparency with investors.
Private Limited has fewer regulatory obligations. They have to comply with corporate governance rules, but they don’t have to disclose financial details publicly and have more flexibility in decision-making.
5. Decision-Making
PLCs are influenced by shareholders, a board of directors, and regulatory bodies. While making a decision, they have to balance investor interests, corporate governance, and long-term strategy.
Decision-making is more flexible. Founders or a small group of shareholders have greater control over the operations, which allows faster decisions.
6. Risk & Liability
Market fluctuations and economic factors can affect the company’s valuation and financial stability. Additionally, public limited companies have to undergo public scrutiny which increases pressure on management.
Private Limited Companies are more stable as they are not listed in a volatile stock market. Owners and directors have more control over decisions without external public pressure.
Pros and Cons of Public Limited Companies
| PROS | CONS |
| PLCs have more opportunities to raise money. The public invests in the company, and they can also invite shareholders for funds. | Banks are more willing to extend the finances of PLCs largely due to lower risks. It opens opportunities for financial support from banks to expand the company to new markets. |
| Selling and purchasing shares is much easier with public companies, which encourages potential investors to buy shares. | Keeping financial reports in check takes more work and time, which may lead to higher overhead costs. |
| Thanks to its induction into the stock exchange, more people become aware of a business, leading to more brand awareness, sales, and investments. | The shareholders must always know what public companies are planning. PLCs have to publish their financial reports and annual accounts periodically to keep all shareholders informed. |
| A large number of members distribute the risk among shareholders. This is why many businesses prefer a public limited company. | |
| Banks are more willing to extend the finances of PLCs largely due to lower risks. It opens opportunities for financial support from banks to expand the company to new markets. |
Pros and Cons of Private Limited Company
| PROS | CONS |
| Any shareholder is only liable for debts up to the value of your shares. It reduces the risk of having your assets seized to pay the debts. | Private limited companies cannot list their shares on the stock exchange, which significantly reduces the number of potential investors. |
| The shares of the private limited company can easily be transferred or sold. It facilitates the smooth continuation of the business beyond the involvement of the original owners. | The companies cannot issue prospectus to the public. This means you cannot invite the public to invest or subscribe to the company’s shares. |
| Pvt Ltd companies have better control over the decisions as the shares are privately held by known people. | |
| Pvt Ltd owners don’t have to disclose their financial records, and profit and loss statements. |
Which Type of Company Structure is Best for Your Business?
PLC or PVT – The decision will directly impact everything from ownership control to capital access, legal obligations, and the overall growth potential of your business. You need to take care of a few factors before final decision:
- If you are planning to scale your business quickly and raise significant capital from a wide range of investors, a Public Limited Company (PLC) is the right fit. On the other hand, if you prefer to maintain tight control over the business and limit ownership to a small group of individuals, a Private Limited Company (Ltd) may be the better option.
- A Private Limited company is the best bet If you want more control over your business. But if you are okay with involving a larger pool of shareholders – diluting ownership and control, then go for a Public Limited Company.
- If your business requires significant capital for expansion, a PLC offers better opportunities. But If you are a smaller business with moderate capital needs, an Ltd might be a more appropriate structure.
- Lastly, Both types of companies have distinct tax structures and compliance requirements. So, for those who are more inclined to simpler and less burdensome regulations, A Private Limited Company is their best. As a Public Limited Company must comply with stricter financial reporting, governance, and auditing requirements.
Tip: Before making your final decision, consult with financial and legal experts to evaluate which structure aligns best with your business goals. Take the time to understand the specific tax and legal obligations in Pakistan, as these can affect the long-term success of your business.
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