Public limited companies are large limited companies.
Shares can be advertised for sale publicly and are traded on the stock exchange. Public limited companies are often big multinational businesses with operations in many countries around the world. Public limited companies usually hire professional managers whose job is to make the best decisions making sure that the company remains competitive globally and profitable.
Advantages of a public limited company
Advantages of public limited companies include:
1. Limited liability. Shareholders have limited liability.
2. Separate legal entity.
3. Continuity. Continuity in the event of the death of a shareholder.
4. Ease of buying and selling of shares. This encourages much more investment in public limited companies.
5. Specialized management.
6. Access to substantial capital sources. Due to the ability to issue a prospectus to the public and to offer shares for sale to the general public.
7. Quality products. Public limited companies usually generate substantial sales revenue from selling a wide range of standardized products.
Disadvantages of a public limited company
Disadvantages of public limited companies include:
1. Costly and complicated legalities. The legal formalities of setting up a public limited company are very costly, e.g. fees for business consultants and financial advisers when creating such a company. The setting up costs can run into millions of USD$ in some cases.
2. Investors’ influence. Because of divorce of ownership and control, directors’ decision-making is sometimes influenced by major shareholders who seek to satisfy their own objectives in the short-term, e.g. demand to be paid higher dividends than they had planned, which reduces retained profit available for reinvestment into the company.
3. At risk of takeover. The public limited company is always at risk of takeover by another company due to the availability of the shares on the stock exchange which can be bought and sold by anyone. Any other business needs to buy 51% of the shares in a company to become the majority shareholder.
4. Lack of privacy. All the company’s accounts can be inspected by members of the public. The company has a legal requirement for the publication of company information to shareholders and the public, e.g. annual publication of detailed report and final accounts.
5. Closely regulated. Extensive record keeping at any point in time is necessary.
6. Share prices subject to fluctuation. Sometimes for reasons beyond business control, e.g. state of the global economy or unfavorable media reports.
7. Double TAXation of dividends.
8. Poor relationship with customers. Because of the large size, dealing with customers at personal level is very restricted. Many public limited companies are inflexible and take a long time to implement change.
