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Advantages And Disadvantages Of a Public Limited Company

Advantages And Disadvantages Of a Public Limited Company

Advantages And Disadvantages Of a Public Limited Company: Public Limited Company (PLC) is a duly registered company with Limited Liability whose shares are sold in the stock market and as well can have their shares sold by member to the general public.

Companies that are public limited companies are required to include the abbreviation ‘PLC’ after the company’s name. Membership of a Public Limited Company is unlimited, although there is a minimum membership requirement which may vary from state to state, but generally, at least two directors are required and then seven members.

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Being a director in a Public Limited Company is not restricted to any class as long as such a person is not declared bankrupt and has not gone beyond a prescribed age (usually the retirement age, 70) as may vary in states. Moreso, a minor cannot be a director.

A Public Limited Company enjoys the status of independent legal entity, having been incorporated. Thus, it has the legal capacity to engage in transactions, acquire properties, sue and be sued in its own name. It therefore exists independent of the existence of its owners and shareholders. Having a limited liability feature, it shields the shareholders from personal liability of the debts and liabilities incurred by the company.

The members’ liability is only limited to their interest invested in the company as shares. Being a ‘Public’ Limited Company, the affairs of the company is open to the public. Formation of a Public Limited Company requires having a specified threshold amount of share capitals which varies in states.

It is possible for a Private Limited Company to be converted to a Public Limited Company as long as the required threshold capital is met and a majority count of the shareholders signifies their approval thereon. On the other hand, it is also possible for a Public Limited Company to be converted to Private Limited Company by filling the necessary forms and procedures.

Advantages And Disadvantages Of a Public Limited Company

Advantages And Disadvantages Of a Public Limited Company

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Advantages (merits) of a Public Limited Company

1. Generation of Income through Public Issue of Shares: One of the major channels through which Public Limited Companies generate capital is y selling shares to the public.

2. Security for Loan Advancement: Public Limited Companies can obtain and secure loans using the assets of the company as security as opposed to using the personal assets of the members.

3. Transparency Advantage: Being a public company, the affairs of the company are not kept private. This encourages the directors to run the company in every transparent way possible. By so doing, the confidence of the general public in the company is boosted and they find reasons to invest in the company. It is from the public investment that Public Limited Companies generate capital.

What are the advantages of a public limited company?

What are the advantages of a public limited company?

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4. Separate Legal Identity: A duly incorporated Public Limited Company has an identity entirely different from that of the members. This means that the company is capable of independent existence and can enter into contractual transactions, acquire and own properties, and has the legal capacity to sue and be sued in its own name.

5. Spreading Risks of Ownership: Because a Public Limited Company allows for pubic and unlimited membership, the risk of ownership is then spread amongst many people as opposed to being centered on a few as in the case of a Private Limited Company.

6. Public Awareness: When a company is declared public, the affairs of the company cease to be run privately. The public running of a company as required in a Public Limited Company creates an avenue for the publicity of the company. This position contributes to effective management of the company and attracts more investors.

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7. Transferability of Shares: Unlike Private Limited Company which has procedures and restrictions on the transfer of shares, a Public Limited Company shareholder is at liberty to transfer his shares to another either by outright sale, gift or any mode of alienation whatsoever.

The permission of the management or other shareholders is not required for transfer of shares in a Public Limited Company. This too counts to flexibility. For this reason alone people are more prepared to invest in a Public Limited Company than otherwise.

8. Exit Strategy: This too flows from the flexibility in the transfer of shares. Members who wish to exit a Public Limited Company can do so by simply selling off their shares. Buying of shares is a viable investment policy which can yield profit upon selling of the shares.

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9. Unlimited Membership: Membership of a Public Limited Company is unlimited. Membership is open to the general public. This policy contributes to the raising of capitals for the company through unlimited buying of shares by the public.

It however has a minimum membership requirement of seven persons or as may be varied in the applicable state. The requirement of minimum of seven persons is still not a large number, so, it qualifies s an advantage. Moreso, there has to be up to two director in a Public Limited Company.

10. Limited Liability of Members: A Public Limited Company having a legal identity is liable for the losses, debts and liabilities of the company. Members are protected from personal liability. The members’ liability in only limited to the amount of shares invested in the company.

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11. Involvement in Management: Members of a Public Limited Company are not required to get involved in the day-to-day management and control of the affairs. The management of the company is rather vested on the Board of Directors.

12. Continuity: A Public Limited Company can run in perpetuity. The insolvency, retirement or death of its members does not affect the continuity of the company. The transferability of shares also makes continuity feasible.

How are public limited companies governed

How are public limited companies governed

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Disadvantages (Demerits) Of a Public Limited Company

1. Regulations: Being of public interest, Public Limited Companies are subjected to more regulations. There is also a demand for transparency to the public, rendering of accounts and yearly general meetings of the shareholders.

2. Absence of Privacy: The affairs of a Public Limited Company are run publicly. This qualifies as a disadvantage for it is the other way round in a Private Limited Company.

3. Management and Control: The management and control of a Public Limited Company is vested on the Board of Directors while the shareholders are not required to get involved. Moreso, conflict of interest may arise where the purpose of the director do not tally with the interest of the shareholders. And ordinarily, management of a public company poses more difficulty since the competing interests are many and even unlimited.

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4. Rigorous Decision-Making Process: The management of a Public Limited Company involves Board of Directors with a lot of interests to balance and protect. Being of public interest, the decision-making process is liable to be slow.

5. Lots of Power and Control by the Founders: When a company is declared public, the founders looses absolute power and control over their enterprise for it must be run according to the policies of a Public Limited Company and no longer on their own terms.

6. No Limit to the number of shares to be owned: A person ca by as many shares as possible in a Public Limited Company, and the amount of shares owned by a person increases his status and gives him a voice in the management of the company. This will pose as a problem where hostile persons are the major shareholders.

7. Cost of Formation: The share capital requirement for setting up a Public Limited Company is usually high. This is why people may opt in for Private Limited Company and afterwards convert it to a Public Limited Company when they achieve growth.

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Conclusion

From the foregoing, it is seen that Public Limited Company has advantages which preponderates over its disadvantages.

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