Business ownership - AQAPublic limited companies (plc)
There are a number of options for the ownership of a business. Each ownership type has its own advantages and disadvantages and a business should choose the one that best suits its needs.
As a business grows, it may choose to become a public limited company (PLC). In a PLC, sharesFinancial stakes in a company or business. are sold to the public on the stock marketA centralised market where business shares are traded.. People who own shares are called ‘shareholders’. They become part owners of the business and have a voice in how it operates. A chief executive officer (CEO) 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 money raised when a business becomes a public limited company by offering shares in the business in return for capital.
the shareholders have Limited liability When the business owner or owners are only responsible for business debts up to the value of their financial investment in the business.
increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells.
Disadvantages of being a PLC include:
it is expensive to set up, requiring a minimum set up cost of £50,000
there are more complex accounting and reporting requirements
there is a greater risk of a hostile takeover A takeover of one company (called the ‘target company’) by another (called the ‘acquirer’) that is accomplished without the agreement of the target company’s management. Instead, the acquirer approaches the company’s shareholders directly or fights to replace the management to get the takeover approved. by a rival company as the company cannot control who buys its shares
shareholders will expect to receive a percentage of the profits as dividendsA sum of money paid regularly by a company to its shareholders out of its profits.
shareholders may clash when making decisions about the business
