Advantages and disadvantages of a public limited company

SAKHAWAT HUSSAIN ANDREA YOUNG

TASK A – OWNERSHIP AND OBJECTIVES

ADVANTAGES AND DISADVANTAGES OF A PUBLIC LIMITED COMPANY

The business organisation that I have decided to study during the course of the assignment is ‘Tesco’.

Tesco is a public limited company and there are numerous benefits and constraints when forming a public limited organisation. Many organisations start of as a private limited company and later become a PLC to raise capital in order to expand and develop the company which can play a pivotal role in the competitive retail market.

Tesco is under the control of several shareholders who have purchased the company shares through the stock exchange.

The advantage of a limited company is that shares can be sold to the general public unlike a private limited company and can help to raise substantial amounts of capital easily and are able to advertise in newspapers and on television whereas private limited companies are unable to do this.

Majority of shareholders are interested in investing capital into a company which is successful or has the potential to be successful in the near future. Shareholders in a limited company have limited liability, so that if the company was to have financial difficulties or to go into liquidation than the shareholders will only have the risk of losing what the initially invested into the organisation and their personal asset such as their home or furniture is not ceased in order to pay of the debts of the organisation. They also have a separate legal entity to the organisation they have invested capital in which means the company exists in law separately from its actual owners. The organisation itself is sued rather than the shareholders.

Another major advantage for a public limited company is that banks and other forms of financial institutions are more willing to loan money out to the organisation because they are more certain that the money borrowed will be retrieved easily along with interest rates charged.

Large organisations such as Tesco are more likely to borrow large amounts of money which means more interest for the loan provider.

A public limited company can continue to exist even if the original founder of the company is no longer available, in other words the company is not dependant on the founder.

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Large organisations such as Tesco are more likely to borrow large amounts of money which means more interest for the loan provider.

A public limited company can continue to exist even if the original founder of the company is no longer available, in other words the company is not dependant on the founder.

A public limited company can also benefit from economies of scale because organisations such as Tesco’s need to purchase large amounts of goods of the same type in order to meet the needs of their customers. This means they may be entitles to cheaper borrowing and bulk purchasing from their suppliers.

Along with advantages there are also many disadvantages in forming a Public limited organisation. There are two legal requirements which the company needs to meet before it can begin trading under the name public limited. One of which is the Article of association and the other is the memorandum of association.

MEMORANDUM OF ASSOCIATION

The company name
The main business address
What the business will produce
A statement of limited liability of the members
The number and face value of the shares

ARTICLE OF ASSOCIATION

Procedures for calling shareholder meetings
The number, rights and obligations of directors
Shareholder voting rights
Details of how accounts will be kept and recorded

These two documents need to be completed by the company and sent off to the companies of house where they will assess if the organisation meets the requirements to trade under the name PLC.

The companies of house will provide the organisation of a certificate of incorporation which gives them the legal right to start trading.

Apart from the legal requirements the formation of a public limited company is a very expensive process compared to a sole trader or partnership and requires a great deal of documentation. The company also needs to have at least £50,000 of share available before it can become a PLC.

Another disadvantage is that the founder(s) of the company can end up losing total control of the organisation due to the company shares being readily available for sale on the stock exchange.

Large organisations such as Tesco can become difficult to manage efficiently due to the size and capacity of the organisation which often results in staff feeling ignored by a remote management and the decision making can be difficult and take a great deal of time to be able to reach a conclusion.

Also detailed financial accounts of the organisation must be published each year, which provides valuable information on how the company is performing to competitors and prospective take-over companies.

OBJECTIVES OF TESCO PLC

Tesco is already the number one food retailer in Britain and one of the top three in the world, but the organisations wants to improve in stature and minimise the chances of potential competitors catching up.

Tesco PLC has one main aims which it expects to achieve in order to continue it success in the competitive UK retail market against such competitors as Sainsbury and Asda.

“To increase value for customers continually and to earn their lifetime loyalty”

For this specific aim, they have also set themselves several objectives to increase their chances of achieving the aim such as:

To understand our customers better than any of our competitors do.

This objective was set so that the customer service provided and the understanding of customers by Tesco PLC is the best in the market and to ensure their closest competitors are not capable of competing.

To earn the respect of our staff for these values and to appreciate their contribution to achieving them.

Tesco PLC not only wants to appreciate the contribution of their external customers but also the internal one. Tesco want to show that it cares for the needs and expectations of it staff.

To recognise that we have brilliant people working for us and to use this strength to make our customers shopping enjoyable in a way that no competitor can.

Tesco PLC want to appreciate what their staff are doing for them and that will increase the staff moral and motivate them to continue with the work so potential competitors are kept at bay.

HOW SUCCESSFUL TESCO PLC IS IN MEETING ITS OBJECTIVES

Tesco PLC have been very successful in meeting their objectives, but have not yet been able to meet their aim.

The have improved their customer service system considerably and the number of complaints placed has been lowered.