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Setting up a business as a limited company is the second most popular way of setting up a business in the UK. In there were around 2 million trading limited companies. There are both huge advantages and disadvantages of running a limited company, as well as, other structures such as sole traders which is the most popular business structure, with their being 3. Here is all you need to know about what a limited company is, as well as, the advantages and disadvantages of a limited company compared to other structures. A limited company is one of the three business structures used in the UK.
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A great number of businesses choose to incorporate as a company limited by shares rather than other forms, such as the sole trader , partnership, limited liability partnership LLP or company limited by guarantee. While most companies limited by shares are set up as private companies, in this article we look at the advantages and disadvantages of a public limited company.
As well as those forming new companies, a proper evaluation of the advantages and disadvantages of a public limited company will be needed for an existing private limited company considering converting to a plc. An important part of managing an unlisted plc in the UK is keeping its statutory books and filings up to date. Inform Direct is the perfect tool to help make this task a whole lot easier , meaning you can focus more on running your business. Find out more Log on. As a limited company, a plc shares the advantages of a limited company with its private counterpart.
But there are also specific features of a public limited company, many of which reinforce one another, that give it some unique advantages:. 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 recognised exchange. Since it can sell its shares to the public and anyone is able to invest their money, the capital that can be raised is typically much larger than a private limited company.
Offering shares to the public gives the opportunity to spread the risk of company ownership among a large number of shareholders. This may allow early investors in the company to sell some of their own shares at a profit while still retaining a substantial stake in the company. 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. Banks and other financial institutions may be more willing to extend finance to a public limited company, particularly one that is listed.
The company could also be in a better position to negotiate favourable interest rates and repayment terms on loans. The value 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 ican be in an advantaged position to:.
While often more imagined than real, this perception of being more established, larger or more powerful can affect the behaviour of customers, suppliers and employees. This is effectively free publicity, meaning more people will recognise the company and its products or services.
Better brand recognition can lead to more sales. It may also make you more visible to valuable potential business partners. Again, these factors can affect the behaviour of potential shareholders, customers and business partners. The shares of a public limited company are more easily transferable than those in the private equivalent, meaning shareholders benefit from liquidity. If shares are quoted on a stock exchange, shareholders and potential shareholders will generally find it easier to transfer shares in the company — although the market still relies on willing purchasers and sellers being available.
The fact the shareholders are less bound to remain with the company can give them comfort — and may help the company by making people more willing to invest.
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. There are some important disadvantages of a public limited company, compared to a private limited company.
These public limited company disadvantages include:. To help protect shareholders, the legal and regulatory requirements for a public limited company are more onerous than for private limited companies. For example, additional restrictions include:. These rules, particularly those to be listed on the London Stock Exchange, are demanding. Understanding and applying these additional rules will consume time and effort that cannot then be dedicated to growing the business. Appointing staff or advisers — including the required company secretary — will help but come at a cost.
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.
As well as needing to have its accounts audited, public limited companies are generally unable to file abbreviated accounts, whereas smaller private companies can often do so.
The fuller form of accounts means a public limited company has to disclose more detailed data about the business and its performance, information which is then available to anyone who wishes to access it.
The accounts of public limited companies are often scrutinised more by analysts and receive more media commentary. 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. The use of pre-emption rights can allow existing shareholders to maintain control over the company when a new share issue is undertaken, a shareholder dies or wants to transfer their shares. There is therefore a possibility that the original owners or directors can lose control of the direction of the company, face disputes or just spend a lot more time managing shareholder expectations.
Institutional shareholders can wield particularly high levels of influence, often expecting consultation and adoption of particular policies or standards in return for their investment.
At worst, a company can become vulnerable to a hostile takeover if a majority of shareholders agree to a bid. With shares being freely transferable, a potential bidder can build up a shareholding in advance of launching a bid attempt. Where a public limited company is listed, there can be added pressure imposed by the market. As well as dividends paid from profits, there will be a desire for the share price to increase. This level of emphasis on the share price, usually not so immediate a demand in a private company, can cause the directors to focus almost exclusively on short-term results.
They may therefore miss strategic opportunities or threats, thereby not achieving the best for the business in the long-term. The minimum financial commitment is higher for a public limited company than for a private limited company. There will be other costs associated with obtaining a listing. All companies and LLPs are required to maintain up to date statutory records.
Inform Direct is the perfect tool to keep your unlisted public limited company's records up to date. This site uses Akismet to reduce spam. Learn how your comment data is processed. Read our comprehensive review of UK company formations in , year-on-year growth rates and breakdown by county.
This detailed insight is provided in the form of easy to understand infographics available for sharing through social media and on your own website. Start now x. Public limited company advantages As a limited company, a plc shares the advantages of a limited company with its private counterpart. By having more finance potentially more readily available and on better terms than a private company, the public limited company ican be in an advantaged position to: Pursue new projects, new products or new markets Make capital expenditure to support and enhance the business Make acquisitions whether in cash or by offering shares to the shareholders of the target business Fund research and development Pay off existing debt or replace existing debt with new debt on better terms Grow organically.
Credibility and confidence are reinforced by: Operating under a stricter legal regime than private companies in many areas Higher share capital requirements Greater transparency for example, in the required form of accounts For listed companies, the indirect endorsement of having their shares listed on a recognised exchange Again, these factors can affect the behaviour of potential shareholders, customers and business partners.
Public limited company disadvantages There are some important disadvantages of a public limited company, compared to a private limited company. Hi says:. February 23, at am. February 28, at pm. Leave a Reply Cancel reply. View Statistics.
It is no new business practice for business entities to op to incorporate their businesses into companies limited by shares rather than continuing to perform their duties as sole prorietorships, companies limited by guarantee, limited liability partnerships LLP or partnerships. Choosing to become a public limited company PLC is only but a natural business process when a business feels that there are more business benefits that could accrue to them through the PLC model than any other model. However, before choosing to incorporate any business into a PLC, there a number of factors to consider before going ahead with the move. This means weighing the ups against the downs or the advantages over the disadvantages and understanding what they mean to your business. The need for a proper evaluation of the advantages and disadvantages is the reason why this article will centre its approach on them to shed some more light to any party that is interested in converting to a PLC. This section will focus on the some of the most critical advantages that PLCs offer any other business model. A PLC has a significant number of shareholders, who own a number of shares.
The liability of shareholders, unless and otherwise stated, is limited to the face value of shares held by them or guarantee given by them. A company has a separate legal entity with perpetual succession. In company business, the management is in the hands of the directors who are elected by the shareholders and are well experienced persons. In order to manage the day-to-day activities, salaried professional managers are appointed. Thus, the company business offers professional management. As there is no limit to the maximum number of shareholders in a public limited company, expansion of business is easy by issuing new shares and debentures. Companies normally use their reserves for expansion purposes.
Advantages · Able to raise capital for expansion by selling additional shares · Higher status than a public limited company so will benefit from more.
A public limited company 'PLC' is a company that is able to offer its shares to the public. They don't have to offer those shares to the public, but they can. As always there are some disadvantages to being a PLC as opposed to remaining as a private company. The main downsides are:.
A public limited company is a voluntary association of members that are incorporated and, therefore has a separate legal existence and the liability of whose members is limited. As a company is an independent legal person , its existence is not affected by the death, retirement, or insolvency of any of its shareholders. A public limited company is a form of business organization that operates as a separate legal entity from its owners.
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1 Raising capital through public issue of shares. 2 Widening the shareholder base and spreading risk. 3 Other finance opportunities. 4 Growth and expansion opportunities. 5 Prestigious profile and confidence. 6 Transferability of shares. 7 Exit Strategy. 1 More regulatory requirements.Job V. 26.03.2021 at 20:03
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Advantages of a Public Limited Company: · Directional Insight from Shareholders · Reduction in Personal Liabilities · Improve Branding and.