5. Forms Of Business: PLC’S Flashcards
What are PLC’s?
Public limited companies
Owned by shareholders
Name ends in PLC
run by a board of directors supervised by a chairperson who is accountable to shareholders
Their shares can be bought and sold on the stock market
What is a stock market flotation ?
Occurs when a company goes public
Also called an initial public offering (IPO)
When a companies shares go public for the first time
What are the downside of going public ?
Process expensive and time consuming
What is a prospectus ?
Detailed document advertising the company to potential investors and inviting them to buy shares before the stock market flotation.
Company needs lawyers to ensure prospectus is ‘legally’ correct
Why is ‘going public’ expensive?
Large numbers of expensive publications have to be made available
Advertising and administrative expenses
Company is likely to pay an investment bank to process share applications
What are the advantages of PLC’s
Huge amounts of money can he made from the sale of shares to the public
Production costs may be lower as firms gain economies of scale (increase competitiveness and generate more profit)
Become easier to raise finance as financial institutions are willing to lend to PLC’s as they can provide assets
What are the disadvantages of PLC’s?
Set up costs very expensive
Anyone can buy shares making it possible for an ‘outsider to have power over the company
Members of the public can inspect all of the company’s accounts (competitors can use their information to the advantage)
