The advantages and disadvantages of a public limited company
Working with your current accountant causing you stress?
Becoming a public limited company (or PLC) is the natural next step for many businesses, as it offers a lot of benefits over the more popular private limited company model.
However, there’s a lot to consider before making the move. If you’re thinking about becoming a public limited company, read on to check you’re making the right decision for your business needs.
What is a public limited company?
A public limited company is a type of large business that has offered shares to the general public and has limited liability. Its shares can be acquired by anyone, either privately, during an initial public offering, or through trading on the stock market. For the business, that means shares can be sold to investors to raise capital to pump into the firm.
Strictly regulated, such shares can be listed or unlisted on a stock exchange, with the company needing to publish their finances on a regular basis so that shareholders can determine the true worth of their stock.
Other than that, it runs much like any other company. You may have already looked at the pros and cons of a limited company, so check out these now. .
What are the advantages of a public limited company?
More capital
- Selling shares to the public means that anyone can invest in your company, meaning greater options for where to source value funds.
- Potentially, this can raise significant funds if your company is particularly appealing to the public and traders.
More attention
- Being listed on an exchange ensures that hedge funds, mutual funds, and other traders take note of your business. More interest means more business opportunities for you on top of more capital to be gained.
- It’s the ideal way to make your business a more prominent name in your field.
Spreading risk
- The more people that buy shares in your PLC, the more the risk is spread out.
- It’s also safer than relying on one or two angel investors, as the level of influence is spread out wider amongst your many new shareholders.
Growth and expansion opportunities
- By having less risk, it’s the perfect opportunity for growing and expanding your business – investing into new projects and products, through the money gained via shares.
- Banks are often more willing to extend finance to a public limited company, with a stock exchange listing frequently improving your creditworthiness.
Prestige
- Having PLC at the end of your company’s name adds prestige and grandeur to your business. Future customers, suppliers, and employees will view your business more positively if it has those letters at the end of the name. Even more so if it’s also listed on a stock exchange.
- It can even lead to free publicity with the media devoting more attention to such firms.
What are the disadvantages of a public limited company?
More regulation
- Regulation is far more stringent when you run your company as a PLC. If you want your shares listed, you need to meet strict discourse and filing requirements for the London Stock Exchange, and to keep up to date with such requirements on a regular basis.
- You also need to have at least two company directors, and a company secretary with the relevant professional qualifications.
High initial financial commitment
- In order to trade, your company must start with at least £50,000 of nominal share capital with at least 25% of which is paid up.
- That’s much higher than the financial needs of a private company, with further costs potentially coming from legal and investment professionals advising you on your listing process.
Higher transparency
- Stockholders require regular accounting updates so that they know exactly how their shares are faring. They must be produced within 6 months of the end of the financial year.
- Annual general meetings must also be held, demonstrating your accountability to more people than before.
- Typically, public limited companies are held to account and more thoroughly scrutinised by auditors.
Vulnerable to takeovers
- It’s useful having the risk spread out, but that also means your company is vulnerable to takeovers. This is particularly relevant if a majority of shareholders agree to a takeover bid.
- It’s much harder to control who is a shareholder of your company, so there’s a possibility of losing control of the direction of your business.
If you think you’ve spotted signs that you’ve picked a bad accountant – and need a little help from the professionals – don’t hesitate to contact us today.
