Public Limited Companies (plc) (Edexcel GCSE Business)

Becoming a Public Limited Company (PLC)

• When a business is growing rapidly it may require a significant amount of capital to fund its expansion

• To secure this funding, it may choose to transition from a private limited company (LTD) to a public limited company (PLC)

• This is a complex process with many legal requirements and involves undergoing a stock market flotation

  • The top three initial public offerings as of March 2023 are:

    • The Saudi Arabian oil company, Saudi Aramco, raised $29.4 billion in its IPO in December 2019

    • The Chinese e-commerce company, Alibaba Group, raised $25 billion in its IPO in 2014

    •  The Japanese telecommunications company, SoftBank Corp., raised $23.5 billion in its IPO in 2018

Advantages of Becoming a Public Limited Company (PLC)

Access to Capital

• Significant amounts of capital can be raised very quickly

• This is often a more cost effective way to raise capital than borrowing money from banks or other lenders

Shared Risks

• The risks associated with ownership are spread among a larger group of shareholders

• This reduces the financial risk to any individual

Increased Liquidity

• A company's shares become more liquid (they can be bought and sold more easily) on a public stock exchange

• This can increase the value of the company's shares and make it easier for shareholders to buy/sell shares

Extended Decision-making

• The company will have a board of directors made up of individuals from outside of the company management, and representatives from major shareholders

• This can extend the decision-making process and bring in additional expertise and perspectives that can help the company grow and expand

Greater Public Profile

• Becoming a PLC can raise a company's public profile and increase its visibility with customers, suppliers, and potential investors

• This increased visibility can help the company attract new business and grow its customer base

Disadvantages of Becoming a Public Limited Company (PLC)

Increased Regulation

The business is required to adhere to a range of legal and financial regulations which can be costly and time consuming to comply with. They include:

• Completing regular financial reports

• Maintaining accurate accounting records

• Holding annual general meetings

Loss of Control

• Selling shares to the public means that it will have many shareholders who will have a say in how the company is run

• The business's founders may find that decisions are made by a board of directors, or a CEO whom they appoint

  • E.g. Steve Jobs was famously fired by Apple in 1985 and only returned in 1997

Costly to Set Up

Setting up a public limited company can be expensive, including

• Fees for legal and accounting advice

• The costs associated with the initial public offering (IPO)

Market Pressure

• PLCs are expected to deliver consistent growth and profits to their shareholders

• This can pressure on the management team to prioritise short-term financial performance (e.g. paying staff less) over long-term strategic planning (retaining talented staff)

Risk of Hostile Takeover

• With publicly traded shares, a hostile takeover by a competitor is always a risk

• Kraft bought a controlling interest in Cadbury's in 2010 in a move that caught markets by surprise