Public limited companies
Yvonne Harvey, Contributor

A Bridgeport High School student pretends to play a guitar made by one of his schoolmates, recently.- Anthony Minott/Freelance Photographer

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 seven 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 that the business has raised the minimum amount of capital that will result in the fulfilment of their plans and objectives.

3. The capital is largely raised 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, 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 co-operative. 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 ones.

3. Conflicts 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 assignment for this week will include some of the information from the lesson on private limited companies. Here it is:

a) Define, 'private limited companies' and 'public limited companies'. (4 marks)

b) What does the term 'limited' in the above question refer to? (2 marks)

c) Outline TWO features of the private limited company and TWO features of the public limited company. (8 marks)

d) List THREE advantages and THREE disadvantages of private limited companies (6 marks)

Total marks: 20

Our next lesson will focus on another type of private sector business - co-operative societies. You may wish to read up on this area in preparation for that lesson.

If all goes well, see you next week.

Yvonne Harvey teaches at Glenmuir High School.