Public limited company
A public limited company (PLC) is a type of limited liability company that allows the public to buy and sell its shares on the stock exchange. This structure is primarily found in Great Britain and some Commonwealth countries, similar to what is known as a public corporation in the United States. PLCs have "PLC" as a suffix in their name to indicate their status as publicly traded entities, with notable examples including Shell and Barclays.
One of the key advantages of becoming a PLC is the ability to raise substantial capital through public share sales, which can facilitate growth and expansion. Shareholders in a PLC benefit from limited liability, meaning their financial risk is restricted to their investment in the company. However, operating as a PLC also comes with higher costs and complex regulatory obligations, including the need for transparent financial reporting.
PLCs are subject to greater oversight under British law compared to private companies, which can lead to potential challenges such as shareholder conflicts and risks of hostile takeovers. Despite these drawbacks, PLCs are a common corporate structure, especially for larger companies that can leverage their scale for competitive advantages.
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Public limited company
A public limited company (PLC) is a type of limited liability company that typically allows the general public to buy and sell its shares on the stock exchange. Although the term itself is exclusive to Great Britain and some Commonwealth nations, the concept of a PLC is equivalent to what is referred to in the United States as a public corporation. The PLC abbreviation is used as a suffix after the name of a company to denote that the company in question is a publicly traded organization. All of the companies listed on the London Stock Exchange are PLCs, including such brands as Shell, Barclays, and Burberry. Becoming a PLC has many advantages, with the biggest being that it gives a company the ability to raise capital through the sale of public shares. To earn and maintain PLC status, a company must commit to maintaining transparency by publicly presenting its financial statistics.
Background
PLCs are a type of limited company (LC). An LC is a form of incorporation in which a company’s shareholders undertake a limited amount of liability. An LC is a legal structure designed to ensure that company members’ liability is limited to the stake they own in a company through their investments or other financial commitments. The typical conventions for how LCs are identified vary from place to place. In Great Britain, the name of an LC is followed by the abbreviation “Ltd.” In the United States, other suffixes, such as limited liability corporation (LLC), are also used. In any case, the LC is a common type of corporate structure.
The concept of limited liability means that the owner's assets and income are completely separate from those of the company itself. This arrangement, in turn, assures that the owners’ potential losses are limited to their investments and do not extend to their personal assets or income. In other words, owners’ personal assets are not at risk of being seized in the event that the company experiences financial distress in the course of typical business activity. This separation of shareholder assets and income from those of a company is the biggest advantage of LCs.
In Great Britain, there are two types of limited companies: private limited companies and PLCs. Unlike PLCs, private limited companies are not allowed to sell shares to the public. Instead, shares of private limited companies are owned by private shareholders. These private shareholders purchase their stake in a private limited company by invitation of the company itself. This means that even though the sales are private rather than public, the owners of private limited companies can still sell shares to raise capital. However, there are some potential downsides to private limited companies. Among other things, they involve a great deal of paperwork, can be time-consuming to organize, and may require owners to turn to outside professionals for financial management. For most, the benefits of being a private limited company outweigh the disadvantages. As a result, private limited companies are incredibly common.
Overview
PLCs are the other type of LC. The key difference between a PLC and a private limited company is the manner in which shares of the company are sold. Whereas shares of a private limited company are sold exclusively to private parties invited to purchase those shares by the company, shares of a PLC are sold publicly on stock exchanges. Much the same as with private limited companies, shareholders in PLCs are protected from any financial losses other than those associated with their investments or other commitments to the company in question.
The term “public limited company” is a uniquely British variation of what is known as a public corporation in the United States. PLCs and public corporations are similar in many respects, particularly in that both are publicly traded companies that offer limited liability to their shareholders. They are also similar in that both types of companies are expected to periodically publish shareholder reports that provide insight into the ongoing state of their financial situations.
PLCs have both advantages and disadvantages in comparison to privately owned companies. The greatest advantage PLCs enjoy is the ability to raise a considerable amount of capital through the sale of public shares. Being listed on a public stock exchange goes a long way toward helping a company attract the attention of individual investors, professional traders, mutual funds, and hedge funds looking to purchase shares. The purchase of shares can generate a significant amount of capital for a PLC that can be reinvested in the company—much more than a privately owned company could hope to accumulate. Another major advantage of PLCs is that they offer shareholders limited liability. Since they are not putting their personal finances at risk, purchasing stock in a PLC that offers limited liability poses less risk for potential investors. In addition, because most PLCs are very large, and very large companies can achieve economies of scale, PLCs often find themselves with more price negotiation opportunities when dealing with suppliers.
In terms of disadvantages, a few things can make PLCs less attractive than other types of businesses. For one, PLCs are expensive to start and involve more complex accounting and reporting requirements. PLCs also face risks associated with clashes between shareholders and the possibility of hostile takeovers. For shareholders, investing in a PLC means agreeing to accept a percentage of profits in the form of dividends, which are sums of money paid regularly by the company. There are also added disadvantages for British PLCs as compared to American public corporations because PLCs are subject to much greater regulation under British law.
Many PLCs operate in Great Britain and some Commonwealth nations. Some of the most noteworthy include large companies like Royal Dutch Shell, Rolls-Royce Holdings, Burberry Group, and BP. On the London Stock Exchange, the one hundred largest PLCs are grouped together in an index known as the Financial Stock Exchange 100, or the Footsie.
Bibliography
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