3) Very large public companies can often operate more cheaply than small companies as they operate on economies of scale. For instance, they can mass-produce goods for sale and buy in bulk to save money
4) If the company is successful the shares will increase, which will increase the overall value of the company.
The drawbacks for the owners are as follows:
1) A public company must be registered as such with the Registrar of Companies and has many external regulations to comply with
2) An annual general meeting (AGM) must be held each year and all shareholders must be invited. Shareholders who do not agree with the way the company is managed may raise an objection or vote against a proposal
3) Specific accounts must be prepared each year and must be audited. Moreover the accounts must be published so that a problem year cannot be hidden
4) Shareholders will expect to receive a dividend in return for their investment. They will also want their shares to increase in value. If the company has a poor year or if the stock market performs poorly and the shares fall in value, shareholders will be tempted to sell, lowering the price
5) The original owner may lose most of their control over the company even if they retain a substantial number of shares. Sir Richard Branson bought his company back from public ownership because of this.
Important Facts:
1) Legally, a plc is owned by all of its shareholders so that its ownership may be constantly changing as shares are bought and sold in the stock market. Note that most shareholders in the UK are institutions, pension fund holders, banks, insurance companies etc
2) A plc must only comply with all requirements of the various Companies Acts but must also abide by the rules of the stock exchange
3) A plc can usually choose from a variety of sources of finance. It may decide to borrow money from a bank or other financial institution
4) A plc may decide to grow quicker by buying shares in other (usually smaller) company. This is a takeover. They do not need to buy all the shares to do this – just enough to give a controlling vote.
5) The net profit (after tax) is paid out to the shareholders in the form of a dividend, although the company will also put a proportion into its reserves each year
6) Typical examples include virtually all the household names you can think of – Marks & Spencers, ICI, Tesco, Boots, Barclays Bank
