Public Limited Companies

Question 1

What letters after it’s name mean it’s a Public Limited Company?

Answer 1

PLC

Question 2

Where does a business such as Tesco sell its shares?

Answer 2

The London stock exchange, can be bought by members of the general public.

Question 3

3 differences between Private and Public limited companies?

Answer 3

• Private have LTD after, Public have PLC after.
• Private will sell its shares to close friends or family, whereas Public will sell its shares on the stock exchange to members of the public.
• a Private can start with as little as £2 in share capital, whereas Public must have at least £50,000 worth of shares to begin trading

Question 4

Why is there it easier to attract shareholders to a PLC than an LTD company?

Answer 4

PLCs share their shares in the stock exchange and therefore it is easier to sell shares.
LTDs have to get an agreement of all shareholders to allow a new shareholder to buy shares or for an existing shareholder to leave.

Question 5

3 advantages PLC has over LTD?

Answer 5

• It can grow at a faster rate than companies which remain private as PLCs are able to sell thousands of shares on the stock exchange and can be bought by anyone and and KTD can only sell shares to a limited number of friends or family members.
• in such rapidly changing international markets there is always a threat from competitors so having access to extra capital might become critical for plc in the future

Question 6

What additional steps must a PLC take after its certificate of incorporation has been issued before it can begin trading legally?

Answer 6

They have to draw up an information booklet of what the shares include. They have to obtain a trading certificate to legally allow them to sell.

Question 7

What is meant by the divorce of ownership and control?

Answer 7

The owners are the shareholders + they elect a Board of Directors to control the company on their behalf. The Directors appoint a managing director to control the day to day running of the company.
As a result, the owners are not in control of the day to day running of the business.

Question 8

Advantages of a PLC?

Answer 8

• It will allow plc to raise more capital if required. The business will need this if it is to expand through acquisitions. Large sums of capital available gives the business all the benefits of easier borrowing and economies of scale.
• In such rapidly changing international markets there is always a threat from competitors so having access to extra capital might become critical for plc in the future
• May make it easier for plc to borrow money from banks and other financial institutions
• will improve the corporate image of plc in the eyes of consumers and possibly increase sales.
• Public limited companies are very powerful organisations with great influence in the market.
• Shareholders have limited liability.

Question 9

Disadvantage of a PLC?

Answer 9

• The initial formation process would have been very lengthy and expensive
• Many aspects of company affairs have to be made public which may help competitors gain insight into the business (must send yearly accounts to the Registrar of Companies, but also disclose information to the general public in national newspapers)
• The company would now have to concentrate more on keeping shareholders happy on a short-term basis. This might impact upon its long-term growth plans.
• Plc may become a target to be taken over.
• Divorce between ownership and control. The shareholders are the owners of the business but they elect the managers who appoint the managers who make all the day to day decisions. Therefore, the owners of the company have no real say in its running.
• In some public companies, top management and employees feel out of touch with one another.
• Decision making in large companies is frequently slow because a series of meetings has to be held and numerous people have to be consulted.
• Because they can be bought by anyone, they are vulnerable to takeovers.

Question 10

What are the key features of a PLC?

Answer 10

• Plc after its name
• Owners called shareholders (shares sold to members of the public via the Stock Exchange)
• Incorporated status - a separate legal existence from owners
• Limited liability
• Lengthy Legal process required to set it up
• Controlled by a Board of Directors elected by shareholders
• Run by a Managing Director