Business Organizations: Private and Public Limited Companies Study Notes
Private Limited Companies (Ltd)
Definition: Private limited companies are businesses owned by shareholders. They cannot sell shares to the general public and only sell to family members, friends, or specialist business investors.
Shareholders: Individuals who own parts of the limited company through shares.
Majority Shareholding: Common for founders to hold the majority of shares to maintain control.
Advantages of Private Limited Companies
Ability to Raise Capital: Can issue shares to specific individuals for capital.
Limited Liability for Shareholders: Shareholders' liability is limited to their investment, protecting personal assets.
Separate Legal Identity: The company has its own legal standing, allowing it to own property, contract, and litigate.
Continuity: The company continues to exist independently of its shareholders.
Disadvantages of Private Limited Companies
Cannot Sell Shares to the Public: Limits capital-raising potential.
Legal Formalities: Involves complex legal requirements for setup and operation.
Public Access to Accounts: Financial accounts are publicly accessible, which may disadvantage the company.
Difficulty in Transferring Shares: Share transfers often require consent from other shareholders.
Public Limited Companies (Plc)
Definition: These businesses can sell shares to the general public and trade on stock exchanges.
Scale: Typically used by large businesses needing significant capital.
Government Connection: Sometimes, public limited companies can be state-owned entities.
Advantages of Public Limited Companies
Rapid Expansion: Access to public funding allows for quick capital growth.
Can Sell Shares to the Public: Major benefit due to access to larger capital pools.
Specialist Managers: Can hire specialized managers for various departments.
Limited Liability: Like private companies, shareholders have limited financial risk.
Continuity: The business persists despite shareholder changes.
Disadvantages of Public Limited Companies
Disclosure of Information: Extensive public disclosure is legally mandated.
Divorce Between Ownership and Control: Can lead to conflicts of interest between shareholders and management.
Expensive to 'Go Public': The process of becoming public is costly and complex.
Concept Definitions and Study Tips
Shareholders: Owners of a limited company represented by shares.
Study Tip: Define businesses as either private or public limited companies in exam questions.
Reference Pages: Key definitions are found on Page and Page .