Public limited companies
Yvonne Harvey, Contributor

Westwood High School students in attendance at the national church service for the launch of Parents Month at the William Knibb Memorial Baptist church in Falmouth, Trelawny, on November 6, 2006. - Photo by Herbert McKenis

Hello everyone. I am sure that you will remember that I had promised to look at cooperatives this week.

However, you may also have noticed that our look at limited companies was not completed, since we had not discussed public limited companies. So this week, we will consider the public limited company and next week, we will move on to cooperatives. I apologise for any inconvenience that may have been caused.

As we continue our look at private sector businesses in a mixed economy, you should be able to see clearly the advantages that one type of business has over the other.

Public limited companies are also known as joint stock companies.

A public limited company has a minimum of 7 shareholders, but no maximum. It may start out as a public company or be formed from a private company that has 'gone public'.

Characteristics of Public Companies

1. The company's name will have PLC at the end of it.

2. In addition to the documents that must be provided to the Registrar of Companies by the private company, the public company also needs a Certificate of Trading. This is issued by the Registrar of Companies when they are satisfied the business has raised the minimum amount of capital that will result in the fulfillment of their plans and objectives.

3. The capital is largely through selling shares, selling debentures (loan capital) and borrowing from financial institutions.

4. Large amounts of capital can be raised.

5. Shareholders do not have much to do with the day to day operations of the business.

6. At the Annual General Meeting (AGM) shareholders elect a Board of Directors who are responsible for the decisions of the company. There is one vote per ordinary share.

7. A share is part of the capital of a company or cooperative. Shares are sold to the general public through the Stock Exchange. There are two main types of shares sold: Ordinary shares and Preference shares. You will find it useful to consider the similarities and differences between these two types of shares.

8. The Registrar will approve the issue of a certain number of shares of a certain par or nominal value.

9. Each public company must have a secretary and must publish their accounts.

10. Like the private company, the public company has a separate identity to its owners.

11.Profits are distributed among shareholders in the form of dividends.

Legal Aspects

These are the same as for the private limited company with the addition that they are legally allowed to register and use the Stock Exchange.

ADVANTAGES

1. They are able to raise large sums of capital.

2. The liability of the shareholders is limited.

3. It is fairly easy for them to borrow money from financial institutions as they are seen as secure borrowers.

4. Since they are large-scale businesses, they may reap economies of scale.

5. The public limited company is independent of its owners.

6. Many owners share the risk of the business.

DISADVANTAGES

1. The personal touch which is evident in smaller businesses is often lost.

2. These businesses are more difficult to manage than smaller type businesses.

3. Conflict of interest may arise between managers and shareholders.

4. Too much expansion leads to diseconomies of scale (disadvantages of large-scale production).

5. Accounts must be published and sent annually to the Trade department for inspection.

Your task for this week is to discuss three similarities and three differences between a private limited company and a public limited company.

Bye for now.

Yvonne Harvey teaches at Glenmuir High School.