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Public Limited Company – Advantages and Disadvantages

The Advantages And Disadvantages Of Being A Public Limited Company

A public limited company’s advantages and disadvantages are numerous. The main advantage is access to more investors, through making their stocks public. Whilst even a layman in the stock exchange can tell this new method to raise capital is beneficial, there are more factors to consider.

Around 4% of UK businesses become public limited companies, due to the advantages and disadvantages we’ll outline below. Real Business has put together this article to ensure that any private company considering making the change has enough understanding to make an informed decision.

The Advantages and Disadvantages of Public Limited Companies

Public Limited Company Advantages

The following are the advantages a public limited company structure gives access to:

  • Raise Capital – By listing on a main stock market, such as the famous London Stock Exchange, you widen your pool of potential investors by a large margin, which can raise funds. Most investments will be small, but PLCs have been known to attract legal and investment professionals, such as financial institutions. Institutional shareholders have also been known to raise significant capital for the PLC.
  • Increased Prestige – By becoming a Public Limited Company, your business structure concerning the stock exchange is held to a higher standard. This is because PLCs are subject to stricter regulatory requirements, as well as more in-depth reporting, by bodies such as the companies house. This signals transparency and integrity. Suppose you’re also successful in raising capital through the stock exchange with these oversights. In that case, you will achieve the image that many public limited companies are associated with – stable, professional, and committed to long-term growth. It’s essentially free publicity.
  • Shareholder Liquidity – Both new and existing shareholders can sell their shares easily, unlike with a private company. This increased ability allows private company limited shareholders to take advantage when the share price increases, allowing them to lock in profits by cashing out, and potentially re-entering if it lowers.
  • Limited Liability – PLCs are a separate legal entity from its shareholders, creating a dividing line between company debt and the personal finances of investors. Shareholders’ potential losses are relevant only to the share’s worth, and they are in no way affected by the legal or financial difficulties of a PLC in terms of liability.
  • Separate Legal Entity – Tying into the earlier point, PLC’s contracts, purchase of property, and such, do not affect the shareholders. The PLC exists independently, even if the company director or owner should change, or the shareholders pass away, the company will continue operation. PLCs are also taxed differently from their shareholders, which can be advantageous in certain situations. This protects shareholders’ wealth and enables long-term relationships.

Public Stock Market

Public Limited Company Disadvantages

Private companies may consider the following the possible disadvantages of switching to a public limited company:

  • Administrative Cost – A PLC conversion mandates detailed procedures, such as requirements related to share price, company directors count, and the installation of a qualified company secretary – all of which come at a cost. They must also provide more strict reporting, having to submit financial statements and other disclosures to ensure transparency regularly.
  • Control Loss – Existing investors and shareholders who hold substantial ownership will find that they lose control and influence as the expansion opportunities granted by increased access to shares are realised. Important decisions are dictated by majority rule, rather than the wealthiest individual investors. Activists are also known to be drawn to PLCs, who can often push for changes that are disadvantageous to individual investors.
  • Public Scrutiny – A PLC’s financial situation is under surveillance consistently, and investors, analysts and media outlets analyse reports. Since public markets have a great emphasis on short-term results, the pressure can lead PLCs to prioritise this at the expense of long-term investments. Negative news can also cause negative effects on the share price, impacting the company’s valuation and reputation.
  • Takeover Possibility – There are several scenarios in which vulnerability could lead to takeover attempts of publicly traded companies. If the shares go too low, then it can attract investment from those who can attempt several techniques to take over. These takeover strategies include appointing friendly board members, pushing for an outright takeover through attractive proposals, or launching tender offers to other shareholders, thereby reducing the amount of resistance through the voting system. This means that part of your struggles during poorer periods of business performance would be to maintain control of the company.

Are the Public Limited Company Advantages and Disadvantages Worth it for your Private Company?

As a growing business, you’ll eventually face choices on business structure and direction.

Large-Scale Capital Needs

Does your company have growth ambitions? A PLC can facilitate this with access to large companies, such as financial institutions. That being said, this may cut you off from securing the same level of funding through loans and venture capital. If your company has modest ambition, perhaps it’s better off staying as a sole trader.

The desire for an increased reputation may change this, however. PLC status comes with associated costs but also gains outside of the contents of your financial reports, such as prestige and trust. This could give a competitive edge, and attract powerful business partners. But if you’re operating in a niche market, or in a market where reputation is not a factor, PLC holds much fewer advantages for you.

Control

PLCs provide less control than private companies. In larger and smaller private companies, all decisions are made subject to a smaller number of shareholder expectations and your company directors. Outside of time managing shareholder expectations, you have a regular private company’s regulations and reporting requirements. Also, you don’t need to undergo the administration changes.

If this isn’t relevant to your business structure, then PLCs become a more attractive option.

Professional Advice

What do experts say? Professional legal experts can explain the specific regulations, formation procedures and ongoing compliance requirements, and investment professionals and advisors can analyse your company’s financial needs, projections, risk tolerance and opportunities. But ultimately, only you as a business owner can decide if becoming a PLC is right for your business.

Is a PLC right for me?

A public limited company remains business as usual if going public, operationally speaking. But carefully weighing if the advantages outweigh the drawbacks before making this leap is vital. PLC status impacts finances, governance, obligations and control in exchange for investment capacity. Reviewing this tradeoff holistically is key.

The rest of this guide examines major considerations around becoming a public limited company in the UK. Both upside potential and downside risks come with this choice.

PLC Potential Benefits

What are the Minimum Requirements to Become a PLC?

Now that we’ve looked at the advantages/disadvantages of a Public Limited Company (PLC) you should know whether you qualify to make the transition.

The requirements to set up a public limited company are:

  • Share Capital – A PLC must have a minimum share capital requirement of £50,000, with at least a quarter of it being paid up.
  • Company Director – You need at least two directors.
  • A qualified company secretary – A PLC must appoint a qualified company secretary.
  • Registered Office – You need a registered office address within the UK where official documents will be served.
  • Trading Certificate – If you plan to immediately enter trading as a PLC, you will require a trading certificate from companies house.

While PLCs can be large corporations, even small and mid-sized private companies can make this shift by meeting the above basics.

How do I change to a Public Limited Company?

There are several things you must do to make the transition once the requirements for a public company have been realised:

  1. Choose a Company Name – You must choose a company name that ends in PLC or Public Company Limited.
  2. Prepare Key Documents – You will need to draft both your memorandum of association, which states the company name, objectives and initial share capital, and articles of association, which are a collection of rules governing how the company will run.
  3. Companies House Register Signing – You must apply with companies house, submitting documents as necessary.
  4. Registration Fees – You will pay a fee.
  5. Obtain a Trading Certificate – This is the point at which you’ll apply for a trading certificate if you need one.

The PLC Transition Process

While PLC status has significant advantages for growth, the transition process itself is substantial. Understanding each phase helps determine if and when pursuing an initial public offering makes sense.

Private to Public: Key Transition Points

StageDescription
Private Funding RoundsBefore going public, most PLCs start as private limited companies and build value through funding rounds with private institutional investors. This helps establish company fundamentals.
Pre-IPO PreparationAn IPO landscape review and pre-IPO funding round then set the path to listing. Documentation, financial auditing and process upgrades create compliance readiness.
IPO LaunchThe company then launches an investor roadshow and shares issues on a chosen public exchange through the support of investment banks. This is the point when founders begin ceding some control.
Post-IPO OperationsWith new oversight rules, shareholder accountability and financial disclosures now in place, executing strategy becomes more complex. Managing expectations is key amid intense scrutiny.

Each successive phase brings increased obligations — it’s the price of liquidity and fundraising potential. So thorough readiness is crucial.

The pathway can work with disciplined execution, realistic expectations and expert guidance. But a public crash equally exposes unprepared companies.

Key Reasons PLC Transitions Fail

Despite the interest, many private companies find a full public listing ultimately not viable. Common pitfalls include:

ReasonDescription
Premature TimingIPOs need several years of strong private company financial performance first. Going public too early risks credibility harm if growth stalls post-listing.
Unrealistic ValuationsOver-optimistic projections of market size, expected revenues or long-term profitability eventually correct downwards damaging share prices later.
Inadequate Investor ResearchNot connecting IPO offers clearly to relevant investor mandates and priorities frequently leaves shares languishing without buyers to meet float percentage requirements.
Lack of Oversight InfrastructureNeglecting elements like audit processes, investor relations, staffing or financial reporting systems flusters many newly public companies into non-compliance.

Avoiding these missteps requires pragmatic projections and execution discipline even amid hype. The public markets allow no leniency for underprepared organisations looking purely to cash in.

Conclusion

Transitioning a private company into a listed public entity enables tremendous fundraising capacity but demands increased financial and operational obligations few leadership teams fully anticipate. Despite the list of public limited company advantages and disadvantages, there are numerous examples of success stories, such as the rapid global growth of some UK public technology innovators like Wise, THG and Deliveroo.

Ultimately the optimal choice of remaining private or pursuing a public listing comes down to honestly weighing specific ambitions, growth requirements, risks and leadership preferences against viable options. Getting aligned on what problems an IPO solves is the right first step.

Public Limited Company – FAQs

What is the difference between a public limited company and a private limited company?

A private limited company’s shares are not publicly traded and are held by a smaller group, such as founders, family, or perhaps banks and other financial institutions. There is no need to submit annual accounts audited with the same details, nor do your shareholders benefit from limited liability protection. Nonetheless, if you want further detail, Real Business has put together an article on the advantages and disadvantages of a private limited company formation. 

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