The Advantages and Disadvantages of a Public Limited Company (PLC) structure
There are many business structures in the UK, and a public limited company is one of the most common business structures in the UK. The business structure involves the public offering of its shares to public investors. This is the main difference between a public limited company and a private limited company which usually has shareholders who are also members of the management team. Public limited companies, on the other hand, can have numerous public investors in addition to a small number of individuals who run the business day-to-day.
Why look at the Advantages and Disadvantages of a Public Limited Company
In order to grow and expand your business, selecting a suitable business structure from the beginning lays a strong and scalable foundation for that business. Selecting the wrong structure can result in additional costs, increased scrutiny, and errors along the way. In order to select the most suitable structure for your venture, you should understand your goals and objectives and how each structure plays a part in the achievement of those objectives. Looking at the Advantages and Disadvantages of each of the structures available to you will help you in determining which option suits the business and its objectives the most.
Advantages Of A Public Limited Company
Public limited companies (PLCs) share many of the same benefits as private limited companies. PLCs have some specific features that give them some unique advantages, such as:
Raising Capital Through Public Issue Of Shares
This is the main advantage of a public limited company. A public company can raise money by issuing shares to the public. It can also get a loan from a bank or other financial institution by pledging its assets as collateral. It offers investors the opportunity to own shares in the business. This can provide liquidity for shareholders as they can sell their shares on an open market. In addition, public companies are subject to greater levels of scrutiny from the public, which means that the public can have greater confidence in their management team.
Widening The Shareholder Base And Spreading Risk
Offering shares to the public allows a company to spread the risk of ownership to a lot of people. This is especially important for companies that are expanding or growing rapidly. It also allows the company to raise more money, which can be used for growth and expansion.
Other Finance Opportunities
Public companies have access to a wider range of financial instruments than private companies. This is because public companies are subject to greater levels of scrutiny from regulators and the public. A public company can raise money by issuing shares to the public and can also get a loan from a bank or other financial institution by pledging its assets as collateral while offering an opportunity to shareholders to own shares in the business. Speak to your accountant if this is something that interests you and if you want to take your limited company public.
Growth And Expansion Opportunities
A public limited company is one of the most common ways for smaller companies to go public. They can raise funds for expansion by selling shares to the public and raising money through debt. In addition, public companies have more accountability in their operations and management structure than smaller private companies do, as there is a higher level of stringent rules and regulations applicable to such companies.
Prestigious Profile And Confidence
A public limited company is seen as a prestigious status symbol. It gives the public confidence in your company and can increase public awareness of your business.
Transferability Of Shares
A public limited company has public shareholders who can buy or sell shares in the company without having to ask for permission from the directors. This is known as ‘transferability of shares’ and it allows public companies to attract investors more easily than private companies, which have restrictions on share transfers.
If you own a public limited company and want to get out of it for some reason, you can sell your shares on the public market. This is a good way to make money from an investment as well as giving yourself an easy exit strategy if things go wrong.
Disadvantages Of A Public Limited Company
Public companies have some disadvantages over private companies because they are subject to greater levels of scrutiny from regulators and the public. The public can see how much money is being spent on things like salaries, bonuses, advertising, etc, which makes it harder for public companies to hide their costs.
More Regulatory Requirements
The public limited company is subject to more regulations than private companies. These include disclosure of financial information and reporting requirements with Companies House (UK). The public limited company must also hold an Annual General Meeting (AGM) each year where shareholders vote on important matters, such as whether or not to declare dividends.
Higher Levels Of Transparency Required
A public limited company is subject to greater levels of scrutiny from regulators and the public, which means that they have more accountability in their operations and management structure than smaller private companies do. This includes disclosing financial information and reporting requirements with Companies House (UK). The public limited company must also hold an Annual General Meeting (AGM) each year where shareholders vote on important matters, such as whether or not to declare dividends.
Ownership And Control Issues
When a company is private, the shareholders are usually people who are known to the directors or founders. The company will be selective about who to let become a shareholder, making sure they support the vision and plans for the business. When new shares are issued, pre-emption rights allow existing shareholders to maintain control over the company.
When a company is public, it is much harder to control who owns the company and what the directors are responsible for as compared to a private limited company. This means that the original owners or directors can lose control of the company, have disputes, or spend much more time managing shareholder expectations.
Institutional shareholders can have a lot of influence on a company. They often expect to be consulted about the company’s policies and to have standards that they set to be adopted.
More Vulnerable To Takeovers
A public limited company is more vulnerable to takeovers than a private company because public companies have shares that can be bought or sold on the public market. This means that anyone with enough money could buy out a public limited company (which is known as a ‘hostile takeover’) and take over management of it.
Research has shown that public companies tend to focus more on short-term profits than private companies do. This is because public companies have to answer to their shareholders every three months, and they can be taken over if they don’t make a profit. Private companies, on the other hand, can take a longer-term view of things since they are not under as much pressure from the public.
Initial Financial Commitment Is Higher
A public limited company must make an initial public offering (IPO) of shares. This is when the company sells its first batch of stock, which allows it to raise money for growth and expansion purposes.
To set up a public limited liability company, you need at least ₤50k capital and also have to pay registration costs. These costs can be prohibitive for some businesses, which is why many choose to stay private.
In conclusion, there are many advantages and disadvantages of a public limited company structure. It comes with the ability to raise large amounts of money through an initial public offering (IPO) and also benefits from the prestige and brand presence that comes with being a public company. However, they are also subject to greater levels of scrutiny and regulation, which can be onerous for some businesses.
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants and has over 13 years of experience in practice across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. This dexterity led him to be Enterprise Nation’s Top 50 Advisors. Jibran recognised the need to manage the innovative disruptions sustainably early on and shaped Clear House Accountants not just to be compliance specialists but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
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