Advantages & Disadvantages of Being a Public Limited Company

Written by alexis devan
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Advantages & Disadvantages of Being a Public Limited Company
A plc can be listed on the stock exchange. (stock exchange image by Christopher Walker from Fotolia.com)

A public limited company (plc), is a type of limited liability company in the United Kingdom, Ireland, and any other region where English law is practised. This type of corporate structure was introduced in the United Kingdom by the Companies Act of 1980, and in Ireland in 1983 by a similar act. PLC's are able to share their stock on the open markets, but is not obligated to sell its shares, and can remain as private.

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Capital

One of the main reasons that most companies decide to go public is to have access to the capital obtained through the initial public offering (IPO), which there is no interest paid on, and does not need to be repaid like a loan or other debt. This in turn allows the company to be more liquid, invest more capital in improvements, research, and development, and gives the company a more prestigious profile. A plc can also post advertisements offering its securities for sale to the public, unlike a private limited company. A private limited company may not sell its shares to the public directly, or be listed on any stock exchange. Access to the market can have some disadvantages too. For example, ownership can change as takeover bids occur by other companies buying large amounts of shares. Another consideration is that financial goals may become more focused on the short term in order to appease stakeholders, while management may want to set their investment plans on long term outcomes.

Liability

The liability of the shareholders of the company is limited to only their shares, or investment in the company, and the liability to the creditors and other debtors of the company is limited to to the capital and assets of the company, but not the shareholders personal, or private assets. This is similar to a limited liability company and allows individuals and entities to invest in the company without fear of any liability for the future debts of the business.

Formation

Formation of a plc can be time consuming and expensive. In order to form the plc, the company must register with the Department of Trade and Industry and have a minimum of two members and at least two company directors of at least 16 years of age (three in India) and a secretary. The secretary must have held that position for at least three of the five years before their appointment, have held the position for another non-private company, or be a barrister, advocate, accountant, or solicitor (a lawyer in the United Kingdom). The company must obtain a certificate of trading and certificate of incorporation. In order to obtain the certificate of trading there must be £50,000 worth, or £50,085, of share capital, of which at least 25% must have been paid for. This certificate allows the company to do business and borrow capital. Once a company is formed their annual accounts become public for anyone to inspect, and most of the businesses transactions must be announced or made public. They must also abide by all applicable tax and reporting rules and laws that they had not needed to as a private limited company or a partnership.

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