Chapter 23- Forms of Business 2

Question 1

Public Limited Company

Answer 1

The same as LTD.’ But shares can be sold on the stock exchange

• Like a private limited company, it is run by a board of directors
  under the supervision of a chairperson who is accountable to
  the shareholders
• There are just over one million registered limited companies
  in the UK, but only around one per cent of them are public
  limited companies
• However, they contribute significantly to national output and
  employment – the shares of public limited companies can be
  bought and sold on the stock market

Question 2

Public Limited Company advantages

Answer 2

• Money can be raised by selling shares
• Economies of scale
• Because of size they can often dominate the market
• Easier to raise finance as financial institutions are more willing to
lend to public limited companies

Question 3

Public Limited Company disadvantages

Answer 3

• The setting-up costs for public limited companies can be very
expensive – running into millions of pounds in some cases

• As anyone can buy their shares – It is possible for an ‘outsider’ to
exert control on the company – they might even take complete
control of a company if they buy enough shares

• Anyone can inspect their accounts- competitors may be able to
use some of this information to their advantage

• Can’t deal with customers on a personal level – some customers
do not like dealing with giant ‘faceless’ corporations

• There may be a divorce of ownership and control – this means that
the shareholders may not be able to exert enough pressure on
those who end up running the company as senior managers

Question 4

Stock Market flotation

Answer 4

The process of a company ‘going public’- making shares available to the public for the first time- the process Is time-consuming and complicated as and an IPO has to be published first advertising a brief history of the business – a list of the directors and other key personal and how much money raised will be spent.

• A fill stock exchange listing means that the company must comply
  with the rules and regulations laid down by the stock exchange –
  many of these rules are to protect the shareholders from fraud

Question 5

Private Equity business

Answer 5

A business usually owned by private individuals backed by financial institutions

Question 6

Stock Market

Answer 6

A market for second hand shares