Public Limited Companies (plc) (Edexcel GCSE Business)

Shared Risks

• Significant amounts of capital can be raised very quickly
   
• This is often a more cost effective way to raise capital than borrowing money from banks or other lenders

• The risks associated with ownership are spread among a larger group of shareholders
   
• This reduces the financial risk to any individual

• A company's shares become more liquid (they can be bought and sold more easily) on a public stock exchange
   
• This can increase the value of the company's shares and make it easier for shareholders to buy/sell shares

• The company will have a board of directors made up of individuals from outside of the company management, and representatives from major shareholders
   
• This can extend the decision-making process and bring in additional expertise/perspectives that can help the company grow and expand

• Becoming a PLC can raise a company's public profile and increase its visibility with customers, suppliers, and potential investors
   
• This increased visibility can help the company attract new business and grow its customer base

Increased Regulation

• The business is required to adhere to a range of legal and financial regulations which can be costly and time consuming to comply with. They include:
  • Completing regular financial reports
  • Maintaining accurate accounting records
  • Holding annual general meetings

Loss of Control

• Selling shares to the public means that it will have many shareholders who will have a say in how the company is run
   
• The business's founders may find that decisions are made by a board of directors, or a CEO whom they appoint
  • E.g. Steve Jobs was famously fired by Apple in 1985 and only returned in 1997

Costly to Set Up

• Setting up a public limited company can be expensive, including
  • Fees for legal and accounting advice
  • The costs associated with the initial public offering (IPO)

Market Pressure

• PLCs are expected to deliver consistent growth and profits to their shareholders
   
• This can pressure on the management team to prioritise short-term financial performance (e.g. paying staff less) over long-term strategic planning (retaining talented staff)

Risk of Hostile Takeover

• With publicly traded shares, a hostile takeover by a competitor is always a risk
  • Kraft bought a controlling interest in Cadbury's in 2010 in a move that caught markets by surprise