Business growth is important as it enables businesses to increase the scale of their operation and competitiveness. This may be done either internally (organically) or externally (inorganically).
The advantages and disadvantages of external (inorganic) growth
Advantages of external growth include:
competition can be reduced
market share can be increased very quickly overnight
Disadvantages of external growth include:
it can be expensive to takeover/merge with another business
managers may lack the experience to deal with the other businesses
Public limited companies (PLCs)
As a business grows, it may choose to become a public limited company (PLC). In a PLC, shares are sold to the public on the stock market. People who own shares are called ‘shareholders’. They become part owners of the business and have a voice in how it operates. A CEO (chief executive officer) and board of directors manage and oversee the business’ activities.
When a business sells shares on a stock market, this is known as ‘floating on the stock exchange’.
Advantages of being a PLC include:
the business has the ability to raise additional finance through share capital
the shareholders have limited liability
there are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale
Disadvantages of being a PLC include:
it is expensive to set up, requiring a minimum of £50,000
there are more complex accounting and reporting requirements
there is a greater risk of a hostile takeover by a rival company
