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Public Limited Companies

Updated on November 30, 2015

What is a public limited company?

This is a type of limited liability Company that floats or sells shares to the public through the stock market. It is called public simply because any member of the public can buy its shares and be a shareholder.

The opposite of the public limited company is the private limited company. And unlike the private company that cannot sell shares openly to the public, the shares of the public limited company are sold openly to any member of the public and other companies. The shares of a public limited company are sold on the stock market.

Features of the public limited company

There are so many features of the public limited company. The most common features of this type of company include the following:

  • The maximum number of shareholders (owners of the company) is not fixed. This means that the number of shareholders of such a company is not limited. But this is not the case with a private company that has a fixed number of shareholders (usually 50).
  • The shares of a public limited company are issued for sale to any member of the general public on the stock exchange market. There are so many stock exchanges in the world. Some examples of very famous stock exchanges are: the New York Stock Exchange and the London Stock Exchange.
  • Shareholders of public limited company have limited liability. This means that the liability of each shareholder of the company is limited only to the capital he or she has contributed to the business.
  • Though shareholders of a public limited company own the company, they are not the people who control or manage the affairs of the business.
  • A public limited company is a separate legal entity. This means the company can sue and be sued. Since in the eyes of the law, the shareholders are separate from the company, no single shareholder can be sued for any indebtedness or irregularities of the company. It is the company itself that ends up being sued for any irregularities.
  • A public limited company must hold an Annual General Meeting (AGM) of shareholders once every year.
  • The management of the company is done by a board of directors and not by the owners of the company.

Advantages of the public limited company

  • Public limited companies are able to easily raise huge revenues to expand their businesses. The reason this is possible is simply because of the fact that they are allowed to sell shares to members of the public. As a result of this, these companies can raise extraordinarily huge amounts of money to grow their businesses. Also, since there is no limit to the number of shareholders, these companies can get as many shareholders as they want, thereby further increasing the money available to them to finance their business operations.
  • Shareholders of a public limited company have limited liability. This means that in the event the company runs into debt, the persons who own the company (shareholders) don’t lose any other money other than the amount of money they originally contributed into the business. This means their personal income and assets cannot be sold to repay the company’s debt.
  • A public limited company has a separate legal identity. What this means is that the law sees the company and its owners as two totally separate bodies. As a result of this, if the company does something wrong, it is the company that ends up being sued and taken to court, not the owners. The owners of the company therefore enjoy being saved from being part of any trouble that the company brings upon itself.
  • Shareholders don’t have to worry about the tedious responsibilities of managing and controlling the company since that is taken care of by the board of directors.
  • Public limited companies enjoy a long life as compared to other types of business organizations. There are two main reasons why this happens. The first reason is because of the fact that these companies regularly have access to enough funds which they keep using to expand their business operations. They therefore remain in profitable business for a very long time. The second reason is due to the fact that these companies are owned by numerous people and can therefore carry on, no matter what happens to one or more of their owners. But this isn’t the case for many other types of business organizations such as a sole proprietorship or a partnership where the death or withdrawal of one partner can easily lead to the death of the entire business.
  • Because of how large these public limited companies are, they are able to reduce the unemployment problems in a country by giving employment to a lot of people who would have otherwise been unemployed. This, coupled with the huge corporate taxes they pay to the government helps in no small way in strengthening the economy of the country.
  • The sheer size of a public limited company makes it easier for it to access loans from banks and other financial institutions to expand business operations.

Disadvantages of a public limited company

Everything that has advantages also has some disadvantages, and a public limited company is no exception to this rule. Below are some of the common disadvantages associated with a public limited company:

  • The complex legal requirements and bureaucratic processes involved in forming a public limited company makes it one of the most difficult business organizations to form.
  • Since the ownership of a public limited company is always separated from the management or control, it makes it very difficult for the owners of the company to have power or control over the business operations of a business they actually own. The board of directors eventually ends up making all major decisions with regard to the running of the business. This can sometimes be very frustrating for the owners of the business and can lead to serious disagreements and even conflicts between managers and owners of the company.
  • Management problems can easily erupt with these companies. As a result of the nature of these companies, they can sometimes become extremely large that it becomes difficult effectively managing them.
  • A public limited company sometimes finds it difficult keeping certain sensitive information about themselves secret since by law all public limited companies are required to make their annual accounts public by publishing them. Although this action helps shareholders know what their company is up to, it can be harmful to the company in the sense that the company is forced to disclose private and very sensitive information to the public. Not only does this action disclose the private affairs of the company to the public but it also discloses these affairs to the company’s numerous competitors who then learn some of the secrets of the company and can use these secrets against them.

Conclusion


No matter how you look at it, the advantages of public limited companies far outweigh their disadvantages. This is the reason why public limited companies are one of the most popular types of business organizations out there. Even though the requirements needed to form a public limited company can be overwhelming, it is worth the efforts in the long run. Not only can this type of business organization be very profitable for shareholders, but it is also one of the safest forms of investment for investors. In addition to this, the more public limited companies that exist in a country, the higher the likelihood of the unemployment problems in the country to be reduced.

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