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Advantages of Becoming a Public Limited Company
Explain the advantages a business organisation may gain from becoming a public limited company. ➡️1 mark each for each of two advantages identified:
Firm Behavior and Strategies
Frequently asked question
Structure your essay with clear paragraphs, each focusing on a specific point or argument.
A business organization can gain several advantages from becoming a public limited company:
➡️1. Relatively Easy to Raise Finance: A public limited company has the ability to raise capital by selling shares on the stock exchange -. This provides access to a large pool of potential investors, including institutional investors and the general public -. The ability to attract shareholders and sell shares makes it easier for the company to raise funds for business expansion, research and development, acquisitions, and other investment opportunities -.
➡️2. Likely to be Relatively Large: Public limited companies tend to have a larger capital base compared to other business forms -. This allows them to operate on a larger scale, take advantage of economies of scale, and pursue growth opportunities -. The larger size of the company can also enhance its market presence, bargaining power with suppliers, and ability to compete effectively in the industry -.
➡️3. Limited Liability: One of the key advantages of becoming a public limited company is the concept of limited liability -. Shareholders in a public limited company are generally not personally liable for the company's debts and obligations beyond their investment in the company -. This protects their personal assets and limits their financial risk to the value of their shares -.
➡️4. Sustainability: Public limited companies have the potential for long-term sustainability and continuity -. Unlike sole proprietorships or partnerships that may face challenges related to the departure or death of owners, public limited companies are separate legal entities with perpetual succession -. This means that the company can continue its operations even if shareholders or key individuals change -.
In conclusion, becoming a public limited company offers several advantages, including easy access to finance, the ability to operate on a larger scale, limited liability for shareholders, and the potential for long-term sustainability. These advantages can contribute to the growth, expansion, and success of the business organization. However, it's important to note that there are also additional regulatory and reporting requirements associated with being a public limited company, and careful consideration should be given to the specific circumstances and objectives of the organization before making such a transition.
- Brief explanation of the importance of finance for businesses
II. Advantages of being a large and sustainable business
- Explanation of how being large and sustainable can benefit a business
- Discussion of how these factors can contribute to the ability to raise finance
III. Limited liability as a benefit for businesses
- Explanation of limited liability and its importance for businesses
- Discussion of how limited liability can attract shareholders and lenders
IV. The ability to raise finance and its benefits
- Explanation of how raising finance can allow businesses to expand and take advantage of economies of scale
- Discussion of how not being dependent on current owners can benefit a business
- Recap of the advantages of being able to raise finance and take advantage of limited liability.
• relatively easy to raise finance
• likely to be relatively large
• take advantage of limited liability. ➡️1 mark each for each of two explanations given:
• able to sell shares on the stock exchange / limited liability may attract shareholders / banks may be more willing to lend
• the ability to raise finance can allow firms to expand/take advantage of economies of scale
• not dependent on current owners for survival of firm
• owners can only lose the value of their shares.