The primary purpose of a public limited company is to generate profit. This article explains the purpose of a public limited company and its advantages and disadvantages, further justifying the title.
Overview of Purpose of Public Limited Company: A limited company is a type of general incorporation that restricts the level of responsibility assumed by the firm’s stockholders. This phrase refers to a legal framework that assures that the responsibility of company members or subscribers is constrained to the amount of their financial or contractual stake in the business.
In a limited corporation, the firm’s assets and liabilities are distinct from the shareholders. As a result, the personal assets of shareholders won’t be in danger of being taken by creditors if the firm experiences financial difficulty as a result of regular commercial operations. The limited company’s ownership can be transferred easily.
Purposes of a Public Limited Company
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Expanding the Company
Businesses need more cash to finance new projects because their businesses are becoming more in demand. Many businesses are compelled to go public to raise more money. A public corporation is more likely to raise equity to cover a disproportionately more significant share of its funding needs. The company’s ownership is reduced due to equity financing, but it also improves its finances by keeping debt manageable and relieving it of high-interest costs.
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Survival of the Company
A corporation may occasionally require additional funding to support its survival. Companies that want to survive the competition frequently have to increase their operations. Thus, survival is another key goal for a company to go public.
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Generating Profit
Public Limited corporations’ primary objective is to make money to increase shareholder value. For instance, the company’s founders can concentrate on yearly business growth or market share expansion.
A common objective is to increase profits by lowering expenses and driving sales. Being a PLC allows a public limited company to raise more money than any other business forms. This additional funding enables the company to grow rapidly by entering new markets and developing new products.
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Brand Recognition
Many public limited companies believe brand recognition is important. The business is regarded as having more prestige after it is listed on the stock exchange. As a result, it becomes simpler to hire top staff, attract investors, and grow customer trust.
A company can raise brand awareness in addition to becoming public by participating in social initiatives, creating high-quality products that address market needs, or having a strong marketing plan in place.
Advantages of Public Limited Companies
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Issuing Shares to the Public
In order to raise money, a public firm may issue shares to the general public. By pledging its assets as security, it can also obtain a loan from a bank. It gives investors the chance to acquire stock in the company.
As a result of being able to sell their shares on the open market, shareholders may benefit from liquidity. The public can have more faith in a company’s management team because public corporations are also subject to higher degrees of public scrutiny.
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Increased Finance Opportunities
Compared to private organisations, public companies have access to a wide variety of financial instruments. This is because regulators and the general public scrutinize public corporations more intensely.
A public corporation has two ways to generate money: by selling shares to the general public and by pledging its assets as collateral to obtain a loan from a bank or other financial institution, all the while giving shareholders the chance to acquire stock in the company.
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More Opportunities to Grow and Expand
One of the most popular ways for smaller companies to go public is through a public limited company. By offering public shares for sale and taking on debt, they can raise money for expansion. Public corporations also have greater operational and managerial accountability than smaller private businesses.
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Transferability of Shares
A public limited corporation has public shareholders who are free to purchase or sell the business’s stock without obtaining the directors’ approval. This is referred to as “transferability of shares,” and this makes it simpler for public firms to draw in investors than for private ones, which impose limitations on share transfers.
Disadvantages of Public Limited Company
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Increased Regulatory Requirements
Public limited firms have to follow more rules than private businesses. Additionally, the public limited corporation is required to have an annual general meeting where shareholders can cast votes on significant issues.
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Ownership Problems
Private companies typically have shareholders who are familiar with the founders or directors. The firm will be picky about who it allows becoming a shareholder, ensuring that they support the goals and strategies of the organisation.
Compared to a private limited company, it is significantly more difficult to control who owns a corporation and what the directors are in charge of. This implies that the company’s original owners or directors may no longer have control over it, run into trouble, or have to spend a lot more time dealing with shareholder expectations.
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Vulnerable to Taking Over
Shareholders own a small portion of your company. But if they gel well, they can impact your company’s strategic choices. This means that if another corporation decides they want to take over your company, it could progressively acquire shares until they control a majority of it. They will be able to compel the decision to sell your company to the company once they have a majority stake in it.
Conclusion
Public limited companies enjoy a number of benefits, such as the flexibility in how they can get money and the distinguished reputation that comes with being a public company. They are additionally subject to more inspection and regulation, though, which can be burdensome for some organisations. They may be less long-term oriented than private limited corporations because they are also more open to takeover offers. If you still have questions or queries regarding public limited companies, contact us at Vakilsearch and get professional help.
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