Topic 23

Question 1

Main reasons businesses want to grow

Answer 1

1. Economies of scale
2. Higher revenues
3. More security
4. Entrepreneurial goals

Question 2

Common growth path

Answer 2

Sole trader/ partnership -> Ltd -> ‘go public’ (plc)

Question 3

Features of public limited companies

Answer 3

1. Raise large amounts of capital
2. Run by board of directors
3. Mus have 50,000 euros minimum share capital
4. Must hace prospectus
5. Has strict regulations

Question 4

Advantages of PLCs

Answer 4

-> Limited liability for shareholders
-> Easier access to finance
-> Shares can be freely bought and sold
-> More prestige and brand trust
-> Can use shares as employee incentives

Question 5

Disadvantages of PLCs

Answer 5

-> Complex and expensive to set up
-> Risk of losing control (outsiders buy shares)
-> Must publish financial info → less privacy
-> Pressure from media, analysts, and shareholders
-> Vulnerable to hostile takeovers

Question 6

Steps involved in flotation -> 6

Answer 6

1. Hire an investment bank
2. Prepare a prospectus
3. Undergo legal and financial checks
4. Decide how many shares to sell and at what price
5. List shares on London Stock Exchange or AIM
6. Shares are sold, and the company receives the money

Question 7

Why flotation is expensive

Answer 7

-> Admin and legal costs
-> Paying advisors
-> Publishing financial info
-> Risk of undervaluing shares or low investor demand

Question 8

Why some public companies go back to private:

Answer 8

-> Avoid public scrutiny and media pressure
-> More freedom in decision-making
-> Reduce flotation costs and compliance