Officially, PLC stands for Public Limited Company. Compared to the private company structure, where shares would require an agreement from other shareholders to be sold, the shares of a PLC may be sold and traded freely by the general public. While it’s possible to hold an unlisted PLC, a PLC must have a share capital of at least £50,000, with a minimum of 25% paid up. It can be listed on the stock exchange. A large portion of unpaid share capital is often the result of these parameters.
It is required of the PLC to be run by a minimum of two directors in addition to a company secretary. The criteria for directorship are the same as those of a private limited company, although there are additional criteria upon reaching the age of 70. A special resolution would be required to re-appoint directors to the board in that case.
How does PLC status affect the insolvency process?
Fairly subtle differences exist in the insolvency processes for a PLC. Nevertheless, they are crucial to the proceedings leading up to its insolvency. In the event that the PLC is listed on the London Stock Exchange, notice must be served 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.
When this notification is received, 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 have to carry additional restrictions when it comes to winding up or administration resolutions passed by the board. E.g. they may require that specific shareholders or classes of shareholders are consulted and involved in the decision-making prior to the board passing these resolutions.
The next stage is that which would entail the shareholders being required to pass the necessary resolutions to place the company into voluntary liquidation. As is the case with the same procedure surrounding private companies, 75% of the shareholders are needed 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
Because only 25% of the called up share capital is required to be paid up, when buying into a share issue, members 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.
In the event of voluntary liquidation or administration though, any unpaid share capital becomes the asset of the business. The liquidator or administrator will review the members register once they’re appointed 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 experiencing financial difficulties, you can get a free initial consultation from some top business rescue experts to help provide you with a way forward.