Advantages and Disadvantages of Public Limited Company
There are many reasons why people opt to form a Public Limited Company. One of the primary reasons is the owners can trade the company’s share on the stock exchange. Those intending to form a new company must consider the advantages and disadvantages of Public Limited Company. If you are unsure of the steps and procedure required to set up a PLC, consult a professional after understanding the advantages and disadvantages.
What is a Public Limited Company?
A PLC is a separate business entity that offers its shares to be traded on the stock exchange for the general public. Unlike a Corporation, Private Limited Company or an LLC, a public limited company is subject to strict compliance with the government.
Public Company Registration is done under the Companies Act, 2013. Also, a PLC must present its financial reports and accounts publicly to maintain transparency.
What are the Advantages of Public Limited Company?
Compared to a private limited company, there are many advantages of a public limited company for both the shareholders and the general public. Some specific characteristics of this business entity reinforce one another, which gives this business entity more advantages.
1. Limited Liability
The shareholders and directors have most of the advantages of a public limited company as they don’t have to incur more on liability. In addition, since the liability of shareholders and directors is limited to the extent of shares held in the company, they are immune to losing their personal assets if the company suffers a financial loss.
2. Easy Transferability of Shares
One of the known advantages of a Public Limited Company is that its shares are easily transferable. While the existing shareholders solely manage shares of a private limited company, the owners of a public limited company can list the shares on a stock exchange.
Shareholders in a PLC are less bound to remain with the company to invest in the company. It’s also easy to transmit the shares of a shareholder in case of death.
3. A PLC has better finance opportunities
Compared to a private limited company, a Public Company has potentially more investors. Banks and other financial organisations are more willing to extend financial support to a PLC due to several factors, with transparency being such. A Public Limited company is generally better positioned to negotiate favourable interest rates and repayment terms on loans.
4. Guaranteed Employment Opportunities
Since a Public Limited Company is registered publicly complying with the government, the hiring process in such organizations is open for all the job seekers. Also, a Public Company is more reputed and prestigious, offering employee benefits to the current and past employees. If a company is public, it’s likely to gain more attention in public including the investors and job hopefuls.
5. Transparency is one of the Leading advantages of Public Limited Company
Business transparency is what a public limited company is lauded for. Due to the involvement of the general public, the company is bound legally to disclose its details and reports such as quarterly or annual Accounts and financial reports stating its current financial position.
What are the disadvantages of public limited company?
There may be some common to important Disadvantages of Public Limited Company compared to a privately owned one. Some of the commonly faced limitations of a public limited company are listed below.
1. High Cost is one of the common disadvantages of Public Limited Company
The added paperwork and legal formalities are what make the PLC registration process lengthy and costly. It’s normally a complicated thing to start a private limited company. Oftentimes, the costs of setting up a public company and Initial Public Offering (IPO) incurs a capital amount.
2. Slow Decisions
Since more directors are involved in a public venture, the major decision takes time to conclude and execute. Usually, such decisions are made with debates and voting processes. That means that the decision-making process will be slow as most votes are given considering all the aspects of the proposed project.
3. Less Flexibility
A public limited company is bound and lead majorly by the regulations placed by the government. That means there is a lack of flexibility and freedom to drive the company’s business to progress. Flexibility in operations always acts as a strength to every organization, but lack of flexibility is one of the major disadvantages of Public Limited Company.
4. Lack of Privacy
Lack of secrecy is another limitation of public limited company as a PLC must maintain the transparency and trust of the shareholders. The company has to provide full disclosure to the public, due to which secrecy may harm stymie some of the company’s process and integrity. The general public also has the right to be involved in decision making.
5. Ownership issues
In a private limited company, there are a few members in the Board of Directors and shareholders who generally known to each other. The decision about who is going to take over is usually easy to make. But, with a public limited company, it’s much harder to decide who is a shareholder of the company (as anyone can own shared of a PLC). This means that the original owners or directors can lose control of the direction of the company.
There are obvious advantages of public limited company, but there are also some limitations to consider. Whether or not you choose to form a public limited company comes down to several factors: stability, initial capital, and the risks involved. The most significant part is how well versed you are with the legal knowledge and who you choose to consult.