3. Public Limited Companies (PLC)

What may a business require when growing rapidly?

A significant amount of capital to fund its expansion

How might a business secure the funding to expand?

It may choose to transition from a private limited company (LTD) to a private limited company (PLC)

What happens when a private limited company (LTD) converts to a public limited company (PLC)?

The company must meet legal requirements and undergo a stock market flotation (the process of offering shares to the public for the first time) to sell shares to the public

What are the advantages of becoming a PLC?

• Access to capital - significant amounts of capital can be raised very quickly, this is often a more cost effective way to raise capital than borrowing money from banks or other lenders

• Shared risks - the risks associated with ownership are spread among a larger group of shareholders, this reduces the financial risk to any individual

• Increased liquidity - a company’s shares become more liquid on public stock exchange, this can increase the values the value of the company’s shares and make it easier for shareholders to buy/sell shares

• Extended decision-making - the company will have a board of directors made up of individuals from outside of the company. This can extend the decision-making process and bring in additional skill and perspectives that can help the company grow and expand

• Greater public profile - becoming a PLC can raise a company’s public profile and increase its visibility with customers, suppliers, and potential investors. This increased visibility can help the company attract new business and grow its customer base

What are the disadvantages of becoming a PLC?

• Increased regulation - the business is required to adhere to a range of legal and financial regulations which can be costly and time consuming to comply with

• Loss of control - selling shares to the public means that it will have many shareholders who will have a say in how the company is run

• Costly to set up - setting up a PLC can be expensive; fees for legal and accounting advice and the costs associated with the initial public offering (IPO)

• Market pressure - PLCs are expected to deliver consistent growth and profits to their shareholders, this can put pressure on the management team to prioritise short-term financial performance (e.g. paying staff less) over long term strategic planning (retained talented staff)

• Risk of hostile takeover - with public traded shares, a hostile takeover by a competitor is always a risk

What factors should be considered when deciding on the best type of business ownership?

• The business owner

• The market’s nature and size

• The funds required

• The level of profitability