Setting up a Public Limited Company: Advantages and Disadvantages
Author: Russell SmithApril 12, 2018
Considering establishing your business as a public limited company, but are uncertain which direction to take? Read our blog discussing the pros and cons of your options.
Public limited businesses, or public limited companies (PLC), are something we are all very much aware of. When people talk of stocks and trading, they are talking about ownership of PLC assets. But what does it mean to actually own and operate a public corporation?
Is it something you should consider for your business?
Today, our experts in business management and finance look at public limited business advantages and disadvantages to help you answer that very question.
What is a Public Limited Company?
There are many avenues of self-employment, including the establishment of a limited company. Unlike the position of a sole trader, who themselves are the business, a limited company becomes its own legal entity, with associated assets and liabilities.
You can learn more about what a limited company is and how it can benefit your business here:
A public limited business operates just as a limited company (LTD) does in terms of an operational capacity, however, its shares are open to public ownership. Anyone can buy and sell stocks in the corporation, should they be available. Because of this public access, the business must publish their statutory accounts annually to provide an accurate representation of its current financial position.
You can learn more about what statutory accounts are here:
Most public limited companies are large corporations. However, any company that meets certain criteria can establish themselves as a public brand. These include:
- Having at least two shareholders and company directors
- A brand value of at least £50,000
- Employ a qualified company secretary
But why become a PLC over an LTD? This blog explores public limited business advantages and disadvantages and hopes to help you make the right choice about your corporation’s status.
Public Limited Business Advantages
- Raise Capital Through Public Buyers: The primary reason any business would consider becoming a public limited company is the acquisition of increased capital through the sale of stock. Stock sales offer public members a stake in the company in return for financial investment. The sale of stock is perhaps the most sought-after way to gain increased capital for both personal wealth acquisition and business growth. Unlike angel investors, public stock can be regulated in a way that means you gain the required capital without handing off significant power to one individual or group. The sale of stock is based entirely on company value. Learn more about valuing a business here:
- Directional Insight from Shareholders: Becoming a public corporation is an invitation of partial ownership; an invitation that can reach hundreds and even thousands of people, depending on the size of your brand. This gives these individuals a direct line of conversation with your company, with the potential to extract ideas and experience to allow the company to evolve in ways a LTD can’t.
- Reduction in Personal Liabilities: The more people associated with a brand, the lesser the impact of legal ramifications upon an individual’s shoulders, should there be any legal disputes. Private limited companies, while providing more legal protection than sole trader enterprises, still have a small pool of owners and, therefore, provide less protection than a public brand. PLCs also allow for easy moving of shares and assets, which makes an exit from the company far easier than private limited firms.
- Improve Branding and Prestige: Simply put, the biggest and more successful corporations are public sector companies. Apple, Microsoft, Facebook; they are all public. Being in the public domain, trading assets and opening yourself to the stock market brings with it a certain level of brand prestige that can enhance your reputation, investor perception and even increases value.
- Corporation Links and Alternate Growth Avenues: Those who invest in your stock want to see your company succeed, allowing them to make more money. Because of this, you may find your corporation can create links with entrepreneurs, businesses and seasoned industry experts that would have been previous unattainable; links that can provide new opportunities for growth and profit maximisation. Of course, this is all subject to speculation and dependant on who buys stocks, but the potential is there. For example, if a marketing agency were to invest in your brand, you may find they help support growth through discounted rates or consultations.
Public Limited Business Disadvantages
- Potential for Loss of Control: Ultimately, shares control company ownership. Shares count for votes in PLCs, which means if your sell off more than 50% of your company, there is the potential for shareholders to take over and even eject you from the business. This is especially dangerous in situations where two directors have different visions and high share volume because if they can gather enough support, they can oust another director.
- Different Directions for the Business: Yes, we’ve listed this as a pro, but it can also be a con. In an LTD, directors have complete control over the direction of the company and where they see its future. In a public limited business, you can to consider the will of your shareholders or you may face backlash and declining share value. This means you can be subject to their demands, which may force a change in direction or a focus on short-term profitability over long-term gains.
- Stock Market Vulnerability: The value of a private limited company is very much tied to internal assets and investments. However, the same cannot be said for a public limited company. Stock value dictates success. We’ve all heard of companies collapsing as their share value plummets due to external issues, such as bad PR. In some circumstances, this can increase the vulnerability of a company. What is certain is that PLCs are subject to more influence on value than LTDs.
- Increased Legal Implications: As outlined briefly already, by entering into the public domain, corporations must adopt more rigorous legal practices to provide transparency to shareholders and protect them against any potential legal ramifications the company is subjected to. This means a focus on compliance with a large number of laws and increased administrative obligations. More than anything, it is a drain on resources.
Our Conclusion on Public Limited Business Advantages and Disadvantages
There are clear and obvious benefits to registering a company in the public domain. Yet, there are also downsides that will lead some to be concerned about whether or not the choice is right for them.
Ultimately, the choice comes down to stability and risk.
If you believe your company is well established and has the financial backing, growth potential, legal know-how and directional strength to introduce public figures into asset ownership, then a public limited company can be highly advantageous.
However, if you are a small business with limited reach, or a new company still finding your feet, such a strenuous undertaking is unlikely to provide the answers you are looking for. Instead, we would advise sticking with private investors and maintain greater levels of control.
If you are looking for some bespoke advice that considers the public limited business advantages and disadvantages as they relate to your corporation, or would like support establishing your business as a PLC, RS Accountants can help! Get in touch today arrange a free consultation and talk things over with our financial and business experts.