Public Limited Company is one of the most common business structures available. It stands out from other business types and structures. For instance, the business is a distinct legal entity, compared to a sole proprietor representing the business itself.
What is a Public Limited Company?
A public limited company is like a private company when you consider the operational capacity. It, however, stands out in the mode of operation because shares are open to the public. This means that any interested person can buy and sell stocks in the corporation if they are available. Since it is a public business, there must be an annual publication of its statutory account, making available its profit, tax responsibilities, and financial status to the public. After you register a public limited UK company, one can enjoy various advantages as listed below.
Here are five advantages of a public liability company.
Opportunity to Spread Risk by Widening the Shareholder Base
The shares of these companies are readily available to the public. They do this to spread risk in the company to a large number of people called shareholders. As a result, first-time investors in the company have the opportunity to sell a share of their company and profit from it while still having a massive stake in the firm.
There are a couple of benefits that come from offering capital to various investors rather than having a single person or group finance the company. It increases the chance of growth for the company. No matter how huge the capital from a single investor or group of investors, there is the disadvantage of giving them undue control and influence over the company.
Impressive Opportunity for growth and Expansion
Since a public limited company allows interested people to invest, it encourages business growth. The availability of a large finance base makes it stand out and puts it in a better position to enjoy some benefits. A few of the benefits are:
- Opportunity to venture into a new market by pursuing new product
- They can go after a massive project for business expansion.
- Have positive acquisitions, which could be in a case or by selling shares to members of the target firm
- Have helpful research and developments
- Pay off all debts and get new debts with a better deal and reasonable terms.
A Distinct Legal Identity
The sole proprietorship owner is the business itself and is not a separate legal entity. However, the limited company is a distinct legal entity that stands out from the owners, shareholders, and directors. The implication is such that the firm can get into contracts with their name where the responsibility of the liability and debt depends on them.
The owners and shareholders can only be liable for the exact value of their guarantee and unpaid shares. They are not responsible for the entire extent of the company’s liability. If the business becomes insolvent, it is the company that becomes bankrupt and not the shareholders or directors.
The company also enjoys further growth and survival, even if the founding members or original owners die. There is an opportunity for the business to be transferred or sold to anyone at any time. With this, the company can enjoy continuity without disrupting its operation in the market even if the ownership changes.
Efficiency in Tax Planning
In the UK, for instance, Limited companies will pay 19% of their profit as Corporation tax. Sole proprietors, on the other hand, will spend between 20 to 45% as income tax. As a result, there is great flexibility for tax planning.
Shareholders can defer Personal income: Shareholders can postpone profit withdrawal to the future when it is possible to have a lower personal tax rate. This is an excellent strategy for shareholders that want to avoid excessive income tax on their profit.
Shareholders can Reinvest Excess Cash: Shareholders can reinvest all their profit or income to the business to facilitate growth. This is a welcome idea for shareholders because withdrawing their profit could translate to more tax liability.
Transferability of Shares
Compared to private companies’ shares, the shares of a public limited company can be transferred easily. As a result, shareholders have the opportunity to enjoy liquidity. The quoting of shares on the stock exchange allows potential shareholders to exchange shares. However, this depends on the availability of people willing to sell and purchase shares.
It is a comfortable feeling for shareholders to know that they are not bound to remain with the company. This could make investors more willing to buy a share in the company. Also, the absence of restrictions on transferring shares, which is not available in private companies, makes it easier to deal with unpleasant issues like shareholders’ death. This makes it easy to transfer shares based on the will of the dead shareholder.
A public limited company comes with advantages even though there are clear disadvantages. Stability, risk, and finances can affect one’s decision to form a public limited company. The business structure presents incredible advantages that offer a significant chance for growth and new opportunities.