A public limited company and a private limited company are two different types of business structures with their own advantages and disadvantages. Here are seven essential benefits of a public limited company over a private limited company:
Benefits of PLC Over Private Limited Company:-
Access to Capital:
Public limited companies can raise capital by issuing shares to the general public through the stock market. This allows them to raise significant funds for expansion, acquisitions, or other business ventures.
Private limited companies, on the other hand, are restricted in raising funds as they can only do so through a limited number of private investors.
Liquidity of Shares:
Shares of a public limited company are traded on the stock exchange, providing shareholders with the ability to buy and sell their shares freely.
This liquidity makes it easier for investors to enter or exit their positions when needed. In contrast, shares of a private limited company are not publicly traded, making it harder for shareholders to liquidate their investments.
Public limited companies often enjoy a higher level of public perception and credibility compared to private limited companies. The listing on the stock exchange can create a sense of trust among customers, suppliers, and potential business partners.
Public limited companies can have a large number of shareholders, resulting in a more diversified ownership structure.
This diversification can help spread risk and reduce the influence of individual shareholders on company decisions. Private limited companies typically have fewer shareholders, which may lead to more concentrated control.
Attracting Top Talent:
Being a publicly listed company can enhance the company’s reputation and visibility, making it easier to attract top talent, including experienced executives and skilled professionals.
Public companies often offer employee stock options or performance-based incentives, which can be attractive to potential employees.
Exit Strategy for Founders and Investors:
Public limited companies provide an exit strategy for founders and early investors who wish to cash out their investments.
They can do so by selling their shares in the stock market. In contrast, private limited companies might have more limited exit options, and the process of selling shares can be more complex. You Can get all the Information about the process to Convert Private Limited Company to Public Limited Company.
Access to Public Contracts and Projects:
Public limited companies may have an advantage in bidding for government contracts and larger projects, as public entities often prefer working with well-established and publicly accountable companies. This can open up more significant business opportunities for public limited companies compared to their private counterparts.
Essential Requirements of Public Limited Company:-
The requirements for establishing a public limited company can vary depending on the country and jurisdiction. However, there are several common essential requirements to set up a public limited company in many countries. Here are some of the key requirements:
- Minimum Share Capital: A public limited company typically requires a minimum amount of authorized share capital to be issued. This capital requirement may vary from country to country and should be fulfilled before the company is registered.
- Shareholders: A public limited company must have at least a specified number of shareholders (often a minimum of two or more). There is no maximum limit to the number of shareholders in most cases, allowing for a more diversified ownership structure.
- Directors: The company must have a board of directors to manage its affairs. The number of directors may vary, but there is usually a minimum requirement, and they must be appointed by the shareholders.
- Memorandum of Association (MOA) and Articles of Association (AOA): These are legal documents that define the company’s objectives, scope of activities, and internal rules and regulations. They need to be drafted and submitted during the registration process.
- Prospectus: A public limited company must prepare and file a prospectus, which is a legal document containing essential information about the company, its financials, and its shares to be offered to the public. The prospectus must be approved by the regulatory authorities before shares can be offered to the public.
- Regulatory Compliance: Public limited companies are subject to stricter regulatory and reporting requirements compared to private companies. They need to comply with the relevant company laws, regulations, and financial reporting standards of their country.
- Trading on a Stock Exchange: To become a publicly listed company, the shares of the company need to be listed on a recognized stock exchange. This involves meeting specific listing requirements set by the exchange, which can include minimum market capitalization, free float, and financial performance criteria.
- Public Disclosure: Public limited companies are required to make regular and timely disclosures to shareholders and the public. This includes financial reports, annual reports, disclosures of major events, and any price-sensitive information that could affect the company’s shares.
- Corporate Governance: Good corporate governance practices are essential for public limited companies. They must have clear rules and procedures in place for decision-making, transparency, and accountability.
- Compliance with Securities Laws: Public limited companies must comply with securities laws and regulations governing the issuance and trading of shares, protecting the interests of investors and maintaining market integrity.
While public limited companies offer several benefits, they also face more stringent regulatory requirements, higher costs of compliance, and increased public scrutiny compared to private limited companies.
The choice between the two structures depends on the specific goals, size, and nature of the business.