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Advantages and Disadvantages of Public Limited Company

Advantages and Disadvantages of Public Limited Company

Advantages and Disadvantages of Public Limited Company

In this post, we are going to tell you about Advantages and Disadvantages of Public Limited Company:

Public Limited Company are those types of companies where minimum number of members is seven and there is no cap on the maximum number of members. A public limited company has most of the characteristics of a private limited company. A public limited company has all the advantages of private limited company and the ability to have any number of members, ease in transfer of shareholding and more transparency. Identifying marks of a public limited company are name, number of members, shares, formation, management, directors and meetings, etc.,

Advantages of Public Limited Company:

1. Raising capital through Public issue of shares: The most obvious advantage of being a public limited company is the ability to raise share capital, particularly where the company is listed on a recognized exchange.

2. Widening the shareholder base and spreading risk: As well as share capital, a public limited company will often find itself in a better position when looking at other potential sources of finance.

3. Growth and expansion opportunities: The value and chances of being able to raise finance is in how it can be employed to serve the business. By having more finance potentially more readily available and on better terms than a private company, the public limited company can be in an advantageous position to:

(i) Pursue or gain new projects, new products or new markets

(ii) Grow capital expenditure to support and enhance the business

(iii) Make acquisitions (whether in cash or by offering shares to the shareholders of the target business)

(iv) Acquire funds for research and development

(v) Pay off existing debt (or replace existing debt with new debt on better terms)

4. Exit Strategy: Going public can enhance the options for the founders to exit the business at some point in the future, if they wish to do so. Both higher transferability of shares and the increased visibility of the business and its performance may increase the chances of bid interest from potential suitors.

Disadvantages of Public Limited Company:

There are some important disadvantages of a public limited company, compared to a private limited company. These public limited company disadvantages include:

1. More regulatory requirements: To help protect shareholders, the legal and regulatory requirements for a public limited company are more onerous or troublesome than for private limited companies. For example, additional restrictions include:

(i) A trading certificate must be obtained from Companies House before the company can trade (there is no such requirement for a private company)

(ii) The need to have at least two directors (only one is required in a private company)

(iii) More onerous and difficult rules applied for concerning loans to director.

(iv) A suitably qualified company secretary must be appointed.

(v) As well as higher transparency around accounts, they must be produced within 6 months of the end of the financial year (9 months for private companies)

(vi) AGMs must be held, whereas in a private company decisions can more often be made by resolution.

2. Higher levels of transparency required: Limited companies, whether public or private, have more of their details in the public domain, available via Companies House, than other business types. But the required level of transparency is much higher for public companies

3. Ownership and control issues: With a private limited company, the shareholders will typically be people known to the directors or founders. A private company will often be selective over who to admit as a shareholder, ensuring they support the vision and plans for the business.

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