Private sector - limited companies
Private limited companies (Ltd)
Companies often need to grow larger than the maximum number of 20 partners allowed in a partnership.
One way of doing this is to become a limited company. Limited companies have limited liabilityWhen shareholders are only liable for the amount invested in a company., meaning an investor only loses the initial stake if a company goes bust.
Advantages
Limited companies are owned by shareholders and quite often these shareholders are supportive family members.
Profits are only shared between shareholders. They receive this as a dividendA share of profits paid to shareholders..
Limited companies are able to raise money by borrowing and through the share issueWhen a limited company offers equity to investors. of ordinary shareA normal share issued by a limited company..
If the company fails, the investors in a limited company are protected by the rules of limited liability.
Disadvantages
Limited companies must be registered with the Registrar of CompaniesA public authority which is responsible for managing a companies register.
The legal set up costs are expensive. Limited companies must use documents called Memorandum of AssociationThe document which contains information on the name, address, and who is running the company. and Articles of AssociationThe document which contains information on the purpose of the company..
Because profits are only shared with shareholders it is harder to motivate and control workers who do not hold shares.
| Advantages | Disadvantages |
| Owner can retain control | Must be registered with the Registrar of Companies |
| More able to raise money | High set-up costs (legal and administrative) |
| Limited liability | Harder to motivate and control workers |
| Advantages | Owner can retain control |
|---|---|
| Disadvantages | Must be registered with the Registrar of Companies |
| Advantages | More able to raise money |
|---|---|
| Disadvantages | High set-up costs (legal and administrative) |
| Advantages | Limited liability |
|---|---|
| Disadvantages | Harder to motivate and control workers |
Public limited companies (Plc)
Unlike a private limited company, a public limited company can offer shares of the business to the public.
There are some requirements which a company must meet before they can become a Plc.
- they must have share capital of at least 拢50,000
- they must have two shareholders, two directors, and a qualified company secretary
Advantages
Public limited companies can easily raise money because they can sell shares on the stockmarket. This increased capital means the company can grow and diversifyTo do something different to the normal business, eg when a farmer sets up a campsite to make more money..
Disadvantages
Shareholders own a Plc but directors control it. This means that directors may make decisions that the shareholders disagree with.
By allowing the public to buy shares of the company, there is always the threat that someone will buy enough shares to take over the whole company.
Shareholders generally want to make as much profit as possible so it can be difficult to pursue other objectives, such as providing a quality service or acting ethically.
| Advantages | Disadvantages |
| Raise more money by selling shares on the stock exchange | Disagreements over how to run the company |
| Easier to growth and diversify | Threat of take over |
| Difficult to pursue objectives other than increasing profit |
| Advantages | Raise more money by selling shares on the stock exchange |
|---|---|
| Disadvantages | Disagreements over how to run the company |
| Advantages | Easier to growth and diversify |
|---|---|
| Disadvantages | Threat of take over |
| Advantages | |
|---|---|
| Disadvantages | Difficult to pursue objectives other than increasing profit |