A public limited company, also known as a public company or publicly held company, maybe the best option if you’re launching a new business, but it comes with its own set of advantages and disadvantages that you should consider before making the choice to incorporate this type of legal entity.
Both types of companies have their benefits and drawbacks, so here’s what you need to know about each to help you make an informed decision about which one would be the right fit for your needs.
Public Limited Companies Have Many Advantages?
A public limited company is an entity that is legally separate from its shareholders. The owners are investors who have contributed money to get it off the ground; these people don’t have legal ownership of any physical assets, however, unlike shareholders in other types of companies.
If you’re considering investing in a public limited company, there are some advantages that may make your decision easier. The first benefit is liquidity: Because they are registered as companies, they can issue shares that can be bought and sold publicly on stock exchanges or privately through stock markets.
This means that if you do want to exit your investment in a public limited company, you’ll likely find someone to buy your shares easily which is not always true for private entities with no official financial records.
The public issue is one of many methods used by firms to raise capital. Raising capital through a public issue means that shares in your firm are sold to members of the general public via an exchange.
In some countries, there are no restrictions on who can buy shares in private firms meaning anyone with sufficient capital can do so.
The process for selling company shares through an IPO is referred to as floating and it’s generally accepted that floating your firm makes it more easily traded on exchanges in the future.
A Broader Shareholder Base Spreads The Risk
With a private company, you’re taking on much more financial risk than if you choose to go public. If your company fails, it can take down not only your own personal finances but also those of your investors and that means their families and anyone else they are responsible for.
A public limited company spreads out that risk across hundreds or thousands of shareholders instead of just a handful.
There are pros and cons to that arrangement: greater transparency, easier access to capital if you need it, and less room for error with share price fluctuations because there is more capitalized value in each individual share.
Finance Opportunities In Other Sectors
The advantage for an entrepreneur is that public limited companies offer access to capital from financial markets, which are generally far larger than those available to private companies.
This access can be helpful when trying to get a business off the ground or finance additional growth. The disadvantage, however, is that increased access to capital can open up some important areas for abuse by management teams looking to enrich themselves at shareholders’ expense.
Additionally, increasing levels of regulation may limit some options once your company has gone public.
Managing these potential issues can require increased attention to financial reporting requirements another area where small businesses may enjoy an advantage over their larger counterparts in terms of both cost and time commitment.
Public Limited Companies Have What Disadvantages?
Most large businesses are public limited companies. The two main disadvantages to incorporating as a public limited company are how it’s taxed and regulated.
As in any business, there are advantages and disadvantages that come with a public limited company. Here is an overview of what they can be.
Regulatory Requirements Are Increasing
Startups have never been subject to as many regulatory requirements as they are today. In addition to complying with federal standards (such as HIPAA, Sarbanes-Oxley, etc.) startups must deal with new rules in healthcare financial services transportation (like Uber and Lyft) food delivery etc.
It’s more important than ever for startups to know their regulatory environment so they can avoid potential pitfalls before starting up. For example, if you’re selling your product in multiple countries and targeting customers who live there too each country may have its own regulatory framework that you must comply with, which means extra work for you.
When setting up your company structure choose one where your startup will be able to comply with all necessary regulations easily. Being proactive on matters like these is crucial.
High Initial Financial Commitment
One of the biggest advantages of starting a limited company is that it requires fewer resources than other forms of company.
On paper, anyone can be listed as a director or shareholder, meaning you don’t have to have any particular expertise to start up your own limited company. In order to establish yourself as an individual limited by shares in England & Wales you’ll need an Authorised Company Formation Agent (ACFA) who will take care of all statutory filings on your behalf for about £90 usually £150 for private limited companies.
Once that’s taken care of you’ll need somewhere to store your records.
High Transparency
A company limited by shares is, as its name suggests, owned by shareholders. As such, it’s legally required to provide greater levels of transparency than private companies.
For instance, it must submit accounts for public audits on an annual basis, as well as hold an annual general meeting for shareholders to decide on how (and if) directors are to be paid.
Conversely, small private companies usually have less stringent reporting requirements and more flexibility in their operation. Indeed, many entrepreneurs who start businesses with fewer than 50 employees choose to operate as sole traders or partnerships because they don’t want the bureaucracy or expense of creating a company with lots of shareholders they just want sole ownership and full control over their business.
The Short-Term Approach
A public limited company is more attractive to some entrepreneurs than a private limited company for two main reasons:
- you can receive venture capital, which is useful if you are starting out on an idea with no history or track record
- it brings in investment from outside parties that are prepared to invest larger sums in return for gaining greater visibility.
I Would Like To Conclude
After reviewing all aspects, there are many advantages and disadvantages of choosing to form an LLC or corporation as your business structure.
There is no right answer when deciding which type of entity is best for you, but it’s important to consider all aspects, both legal and personal.
The biggest thing to remember is that choosing any kind of business structure will open you up to tax liabilities from day one.
Make sure you have everything in order before making your final decision get legal help if necessary! Once your legal details are sorted out, focus on finding your niche audience that’s what will truly propel your company into success.
