What is a Public Limited Company?
A Public Limited Company is a business that has decided to offer it’s shares on the public stock market. The Stock Market is where anyone can invest in a Public Limited Company. These are usually high value, large businesses that can have massive profits, and offer dividends to those who invest.
In order to become a Public Limited Company, PLC, you need;
- At least two directors.
- A Secretary
- And you must float at least $50,000 shares on the stock exchange, to become a PLC.
Unlike other businesses, a PLC is often owned by a board of directors, that dictate the decisions of a business. PLC’s must also pay Dividend, which is money that the investors receive from the business, determined by their share value. As PLC’s have external influences, they also fluctuate in value and therefore can loose money. Some businesses owners also find that they can loose control. Being a PLC can bring in more capital and make the business more known publically on the sock exchange.
For contrast, to become a Sole Trader. All you have to do is contact HMRC (Her Majesty’s Revenue and Customs) and every year fill in a self assessment. An LTD must send a Memorandum of Association and Articles of Association. For this reason it becomes a lot harder to do so and often people will employ a Secretary. To be a PLC can take lots of time and can sometimes not be possible for companies with a very bad image. Companies also may struggle if they are unreliable or have seasonal traits, such as a manufacturer of Christmas gifts.
Advantages of a Public Limited Company
- Having Shares will fund expansion, allowing the business to grow.
- This also raises company profile.
- The business can raise a lot of capital because there is no limit for shareholders to invest.
- Shares are transferable, so investors can split profits.
- You can get input from investors.
- Investors may try to grow the business, through things like discounted advertising, if they own part of another business.
Disadvantages of being a Public Limited Company
- There could be a possible loss of control, as people may find that shareholders own over 50% of the shares, entitling them to the ownership of the business. This is also known as a divorce of control.
- Shareholders may have other plans to maximise profits over social and ethical goals.
- Share prices could collapse.
- There are a lot of legal formalities.
- Fluctuations in share price could make a company worthless overnight.
- PLC’s are hard to maintain. As they are usually large, often everyone has their own ideas.
- Some companies may be overvalued.
- Some do not have $50,000 worth of shares to float.
A PLC is usually for large companies. Small businesses will not always expect to grow, Corner shops for example, will not grow beyond what is possible due to the local footfall. Therefore PLC’s are often global businesses.
There are many business types of organisation, these all have their advantages, so it is important to know which is better for which task, otherwise a company may find some aspects harder than they should be. The main business types are;
- A Sole Trader is a business owned by an individual, It can have many employees. Common sole traders could be corner shops or man-with-van businesses.
- A Partnership is a business owned by two or more people (usually up to 20), the ownership of the business is split between them. A partnership may be a small manufacturing company or some large accountancy firms have larger quantities of partners.
- A Franchise is a business that is owned by a franchisor, and the licensing to use the brand name is given to the franchisee to sell products under their name. Common examples would be fast food restaurants or garages.
- A Private Limited Company (or ‘LTD’) is a company that offers shares, but does not sell them to the general public. Generally they will have either small amounts of capital, or very large amounts. The size of the business can vary, and can be a multinational company or a medium sized business.
- A Public Limited Company (or ‘PLC’) is a company that sells it’s shares on the stock exchange, allowing members of the general public to invest capital into the business.
- A Co-operative is a business set-up to serve the public, and may have ethical goals, over profits and sales. Some supermarkets work in this way.
- A Social Enterprise is a business who’s money goes toward a social goal(s). Examples would be a company supporting people with an illness or disease.
- There are also Lifestyle Businesses who’s owners work as part of their lifestyle. This can depend on the characteristics of the entrepreneur.
Most of these business types operate on two different types,
- Limited Liability is when only the Business assets can be taken to recover debt. Limited Liability is where the owner is protected from any trouble the business suffers, and vice versa.
- Unlimited Liability is when the business is not protected from such problems, and if the business were to get into financial trouble or insolvency, then the owners assets could be taken as a circumstance.
An LTD (Private Limited Company), must send a Memorandum of Association and Articles of Association. To receive a Certificate of Incorporation and Limited Liability. Becoming Incorporated means that the company and the owner are seen as two separate entities legally.
To be Unincorporated, would mean that the business and the owner are seen as one legal entity.
- The owner is not responsible for the debts of the company.
- The business is not effected by the owners problems.
- Sole traders may find it easier to secure trade credit as it is checked against your credit rating.
- The owner has to pay Corporation Tax.
- It usually takes time to register.
- There may be additional cost as the owner may have to hire an accountant.
- The owner may face troubles moving profits or assets from the company to him.
- It may be harder to secure good trade terms with suppliers as they may see the company as a potential liability.
- This means your business type is Incorporated.