Public Limited Companies (PLCs) have more access to capital as they can raise funds through public investment. The more a public corporation appeals to shareholders, the more money it will earn from investments and mutual funds.
They also have a better possibility of getting good interest rates and loan repayments. Directors may raise additional capital by issuing bonds or debentures on the stock market.
- Transferability of Shares
There are also shares in private corporations. However, there are additional restrictions on who can purchase them. A public limited company makes it considerably easier to sell and buy shares.
This encourages more potential investors to buy and guarantees that shares are not unduly tied to certain individuals.
- Legal Entity
A public corporation is a separate legal organization from its owners that is protected from liabilities and debt. For example, if the company’s owner is in debt, the debt does not apply to the public corporation. This is to prevent the debt from being transferred to investors.
- Credibility & Prestige
In some ways, being publicly traded provides free publicity. A publicly traded company will become more well-known. This results in increased brand awareness, sales, and investments. Furthermore, individuals are more likely to trust a corporation that has “PLC” in its name.
- Less risk involved.
The more shareholders a PLC has, the more risk is shared among them. This is why many companies prefer a big number of stockholders than a few angel investors. The more risk is dispersed, the lower the danger for individual participants.
- Expansion Opportunities
Banks are more inclined to lend to public limited companies than private companies. This is largely due to the reduced risk of investing.
Smaller private enterprises tend to be more volatile, whereas PLCs are more established. More financial backing from banks will help the company grow and expand into new areas.
Disadvantages of a Public Limited Company
- More regulations and compliance.
PLCs are different legal entities. As a result, they face regulations that are not applicable to private enterprises. For example, PLCs require at least two directors and have their accounting audited. This is primarily to ensure that shareholder expectations are consistently met.
- Loss of control
When a firm becomes public, business owners lose some control over it. PLCs are subject to regulatory constraints, resulting in less flexibility in corporate decisions. Financial institutions and stockholders become partly owners and must be considered in all decisions.
- Short-Termism
Constantly sustaining expectations might lead to short-termism. This means that PLCs usually prioritize short-term results above long-term ones. It is challenging to strike a balance between satisfying institutional shareholders and developing long-term goals.
- Complexity and Cost of Financial Reporting
Keeping financial reporting in order requires more effort with a PLC. Many executives must recruit a new business secretary to keep things in order. This requires more time and may result in increased overhead costs.
FreshBooks, an online accounting software solution, streamlines this complex procedure. You can also use our Accountant Near Me page to discover a reasonable accountant that understands the specific requirements of a PLC.
- Risk of hostile takeovers
If a public limited firm experiences financial difficulties, its share price falls, making it more appealing on the stock exchange.
This may appear to be an advantage, but it carries the risk of bidder takeover. One bidder may buy the majority of the company’s shares, gaining considerable business control.
- Increased Disclosure Requirements
Existing shareholders should always be aware of what public firms are proposing. PLCs must publish their financial reports and annual accounts within six months of the fiscal year’s conclusion. They also have to convene annual general meetings to keep all shareholders informed.
