Private and Public Limited Companies

The first type of company is private limited companies. Private limited company must have a least 2 shareholders which can only be family and friends. Furthermore, profits made by the company must be paid as dividends to shareholders and they must have LTD in its name. Examples, of a private limited company are Virgin Atlantic and New Look.

Advantages of a private limited companies are that if they sell shares they gain all the money from it; they can then use this money towards the business. Also shares can only be sold to family members which means they cannot be bought out of the company. Furthermore, a private limited company is a bigger firm which are likely to employ specialists which means they will get the best quality work done. And lastly, illness and holiday days won’t affect the running of the company because there are other people to take over.

However, they cannot sell shares on the stock market (London stock exchange) which means they won’t get as much money and recognition for their company. Furthermore accounts can be seen by everyone, allowing the competition to see precisely how much profit or loss the firm is experiencing. In addition, running a private limited company is more expensive, because for instance they have to pay dividends. Lastly, not all decisions are made by the owner which could lead to disagreements and problems.

Then there are public limited companies. They sell shares to the public on the London stock exchange. These shareholders have limited liabilities and must vote for a board of directors who will make important decisions for the company. Public limited companies must have PLC in their name and accounts must always be published. Examples of a public limited company are Disney and Microsoft.

Advantages of a public limited company are very similar to a private limited company. However, public limited companies can pay people who provide services to the company in shares rather than cash. This is a way to motivate them to grow the company. Furthermore public limited companies can advertise the sale of shares and then sell these shares through a stock exchange to the general public. This is good because they can get more recognition and can gain more cash. Additionally, if they are running low on cash they can sell more shares to resolve the issues.

Disadvantages of a public limited company that are different to private limited companies are that the firm can be taken over. This can be done when a shareholder buys more than 50% of shares making them own more of the company. Also they can be very complex to set up. This is because they must hire services such as an investment bank and a lawyer. These costs can be very high and it may be hard to gain the finance to buy these services. Lastly, public companies have lack of control as they are generally controlled by a board of directors. Therefore those who control the business do not own it.