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What are the implications for a Ltd that is thinking of going 'Public'?

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Introduction

What are the implications for a Ltd that is thinking of going 'Public'? Incorporated business units are divided into public limited companies (PLC) and private limited companies. They share similarities but differ in a number of ways. Due to numerous reasons many private limited companies have been made into PLC's, like Quice Food Ltd and World Call Ltd. PLC's have limited liability like most private limited companies. This means that the shareholders are only liable for the full amount of the share capital they invested, and a shareholder who has fully paid up his share will not be called upon to settle the debts of the company. A PLC is a separate legal entity from its shareholders; it can have a more permanent existence. ...read more.

Middle

Engro Chemicals bought the shares of their archrivals, Dawood Hercules Fertilisers and gained control over the company. A PLC can invite members of the public to subscribe to shares that are freely transferable and can be brought through the stock exchange. This leads to increasing the capital of the business, and this money can be used to expand the business, introduce new products, market the goods and services in a better way, for market research, new technology, increasing the wages of the management and hiring specialised workers. By tapping the resources of the shareholders it is easier for a PLC to obtain loans from banks. With more capital the firm can produce on a large scale and enjoy economies of scale, like employing specialists and buying in bulk at good trade discounts. ...read more.

Conclusion

The directors may aim towards long-term goals and the shareholders towards short-term goals, this causes friction and can be highly damaging for the business. As the company is very large in size, many problems will start to occur. The owners are far removed from the customers and the personal touch may be lost. The business gets no feedback on how the product is doing in the market, but here the capital may be used on market research, to get feedback. There is a loss of overall ownership and control of the business. Decision-making will take time and there may be disagreements as well. The company's tax burden is also heavier as it is subject to a flat rate of 33% of the company's profits. All of the above mentioned factors should be kept in mind before the conversion of a private limited company into a public one. Amna Qayyum AI ...read more.

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