Lecture notes
Private + Public Limited Companies
- Institution
- CCEA
A look at the advantages and disadvantages as operating as a public or private limited company.
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Plc's and Ltd'sPrivate Limited Company:
This is a business which is incorporated and therefore has a separate legal entity from its owners. Shares can't be
sold via the stock exchange.
Advantages Disadvantages
Limited Liability – The obvious advantage of a Limited Liability Company is Lack of Privacy: All private companies are required under UK law to
the financial security that comes with business. As already mentioned, the make certain aspects of their affairs available to the public for
Company’s shareholders will only be liable for any debt the company accrues general inspection. A limited company must publish its accounts
according to the levels of their own investment and no more. This can annually with the appropriate registrar of companies. This gives
provide a comfortable feeling of security for investors in the Company. competitors, or any interested parties valuable insights into the
running of the company.
Separate Entity – Due to its very nature, a limited company is deemed to be Set-up costs: Setting up a private limited company can be time
a separate legal entity from its owners. This has several advantages, consuming and indeed costly process as there is official procedures
including the fact that the company will exist beyond the life of its members. to complete to ensure that the business fully complies with UK law.
If they retire or die, the company will continue to exist and operate. This All the articles i.e. memorandum and articles of association must be
ensures security for employees and other members and also is an advantage completed. Completing these can take a lot of time and often
which other legal forms of business are not subject to. requires the assistance of a solicitor.
Raising Capital: As there is no limit to the number of members a private Taxation: As a Ltd is incorporated they will end up paying tax twice,
limited company can have, it will be able to raise more capital than a once on their earnings and then on their profits. The belief is based
partnership or a sole trader. Private limited companies are generally larger on the fact that private limited companies are legal entities in their
than sole traders or partnerships and therefore are regarded as less risky. own right and are therefore liable for corporation tax. Then salaries
For this reason they typically find it easier to acquire finance from banks and of the directors and the dividends of the shareholders are also
other financial institutions. liable to tax.
Specialisation: A private limited company will typically have more members Limit on Capital: Are not able to issue or sell their shares publicly as
than a sole trader or partnership. Having a greater number of directors or is the case with public limited companies. This means that it is more
managers means that the workload can be shared amongst them, and each difficult for a private limited company to raise the capital required
specialise in the area where they have a comparative skills advantage. This, to finance expansion and growth. At times banks may be put off by
in turn, should lead to greater efficiency and productivity. their limited liability.
Public Limited Companies:
The standard legal designation of a company which has offered shares to the general public and has limited
liability. A Public Limited Company's stock can be acquired by anyone and holders are only limited to potentially
lose the amount paid for the shares. It is a legal form more commonly used in the U.K. Two or more people are
required to form such a company.
Advantages Disadvantages
Limited Liability – The obvious advantage of a Limited Set-up costs: Can be time consuming and a costly process as there are official
Liability Company is the financial security that comes with procedures to ensure that the business fully complies with UK law. In order to set
business. As already mentioned, the Company’s up the business must have allotted hares to the value of £50,000 and 1/4 of this
shareholders will only be liable for any debt the company £12,500 must be paid before it can begin trading.
accrues according to the levels of their own investment
and no more. This can provide a comfortable feeling of
security for investors in the Company.
Specialisation: A private limited company will typically Less Privacy: All public companies under UK law have to make certain aspects of
have more members than a sole trader or partnership. their affairs available to the public for general inspection. For example, every public
Having a greater number of directors or managers means limited company has to comply with the rules of specific exchange on which the
that the workload can be shared amongst them, and each company is listed; these rules are likely to include an obligation to make public all
specialise in the area where they have a comparative skills company results.-> annual, midyear or quarterly results. Also specific details on
advantage. This, in turn, should lead to greater efficiency share price have to be provide and explanations about any key decisions taken by
and productivity. the company and its officers. Competitors: Insight into operations and
management.
As there is a separate legal existence from that of its Threat of Takeover: The value of the company is determined by the financial
owners, it will not be affected if one particular shareholder markets through trading of the company's shares. This means that the value of the
decides to sell his shares. Shares in Plc's change hands company will be determined by the markets view of the company's performance
regularly with very limited impact on its operation of the over a given period of time. If the company falls below a certain level then the
business. company may become attractive target to competitors who may launch a takeover
bid. If the bidding company can acquire enough shares on the open market then it
can force the remaining shareholders to release their shareholdings.
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