At some point in your business journey, you have been advised that incorporation is the best thing to do. And it is, with limited liability, separation of identity and tax advantages incorporation speaks for itself. You may have also been offered a choice between a Private Business Corporation (PBC) and a Private Limited Company (PLC) and when you asked what the difference is between the two you got the answer “one is cheaper”. Not nearly enough of an answer for a discerning person like yourself. So let’s delve into what the differences are between the PBC and the PLC and what they mean for you.
The first useful we can identify between the PBC and the PLC is the limits to shareholding. The PLC allows between 2 and 50 shareholders while the PBC allows 1 to 20 shareholders. In addition to this, the maximum number of directors is also limited to 50 and 20 respectively. A PBC can convert to a PLC in future.
There is also a difference in documents produced by the two different forms of incorporation. A PBC does not require Articles of Association of a company while a PLC will require Articles of Association. When you register PBC you receive a Certificate and Statement of incorporation, whereas a PLC will result in CR6, CR14 and other company registration documents. These documents tend to be explicitly mentioned when dealing with bigger organisations and their absence may disqualify a PBC from such relationships.
The company’s status is another difference we can discern between PLCs and PBCs which may impact your choice of vehicle. In a PBC, directors must be shareholders while in a PLC directors can be appointed from outside the shareholding of the company. This needs to be considered carefully.
Companies as shareholders
The ability for other companies to hold shares in your company is an important consideration in terms of the investment potential. Also because Zimbabwean companies do not pay tax on dividends from other Zimbabwean companies. While PLCs can have companies as shareholders PBCs are not afforded this luxury.
The relationship with ZIMRA and other authorities in terms of annual returns is another difference to consider. PLCs are required to submit annual returns to ZIMRA while PBCs have no such requirement to deal with. While your tax affairs should also be kept in order its is fathomable that a business that is not as active may prefer the non-compulsory annual returns route. It’s worth mentioning while we are here that in certain circumstances PLCs will be required to submit audited financial statements where PBCs are not required to submit audited financial statements.
You should also consider the fact that the degree of disclosure on ownership of the company differs between the two company structures. According to changes made to the Companies Act, PLCs must disclose the identities of shareholders and beneficial shareholders through the maintenance of a register. PBCs on the other hand are not required to maintain such a register.
Annual General Meeting
It is commonplace for owners or members of companies to meet to discuss matters of the business. While with PLCs the annual general meeting (AGM) is compulsory those who register under PBCs do not need to conduct an AGM.
I mentioned earlier that the most common response you will get is that one is more expensive than the other. This is true, registering a PLC costs more than registering a PBC. But it doesn’t end there. Other costs are involved on an ongoing basis such as maintaining the company shareholder register, annual returns, audited financial statements and more. These ongoing costs amplify the effect of a PLC being more expensive than PBC in Zimbabwe.
The PLC was designed for SMEs. These are businesses that can run autonomously of ownership and have a national outlook. The cost associated with running a PLC is very hard to justify otherwise. The PBC is a starting point, for what we can call micro businesses. Choose wisely but remember you can always grow into a PLC from a PBC.