Public limited company advantages
As a limited company, a plc shares the advantages of a limited company with its private counterpart. But there are also specific features of a public limited company that provide unique advantages:
1. Raising capital through public issue of shares
The most obvious advantage of being a public limited company is the ability to raise share capital. The widest opportunities to market shares are available when the company is listed on a recognised exchange.
With certain restrictions, a public limited company can sell its shares to the public and anyone is able to invest their money. Therefore, the capital that can be raised is typically much larger than a private limited company.
It’s also possible that having stock listed on an exchange could attract investment from hedge funds, mutual funds and other institutional traders.
2. Widening the shareholder base and spreading risk
Offering shares to the public gives the opportunity to spread the risk of company ownership among a large number of shareholders. This may allow early investors in the company to sell some of their own shares at a profit while still retaining a substantial stake in the company.
Obtaining capital from a wide range of investors has some advantages over relying on one or two ‘angel investors’, as many private companies will choose to do to facilitate growth. An angel investor may provide a large amount of capital and expertise. However, the founders may not be comfortable with the level of influence over the company’s direction that the angel will often expect.
3. Other finance opportunities
As well as share capital, a public limited company will often find itself in a better position when looking at other potential sources of finance.
There are additional demands upon public limited companies. Those companies maintaining a stock exchange listing will face additional requirements. These additional compliance obligations can help to improve a company’s creditworthiness when issuing corporate debt. That will in turn reduce the return the company needs to offer investors.
Banks and other financial institutions may be more willing to extend finance to a public limited company, particularly one that is listed. The company could also be in a better position to negotiate favourable interest rates and repayment terms on loans.
4. Growth and expansion opportunities
The value of being able to raise finance is in how it can be employed to serve the business. By virtue of the additional finance that may be available to a public company, it can be in an better position to:
Pursue new projects, new products or new markets
Make capital expenditure to support and enhance the business
Make acquisitions (whether in cash or by offering shares to the shareholders of the target business)
Fund research and development
Pay off existing debt (or replace existing debt with new debt on better terms)
Grow organically
5. Prestigious profile and confidence
Whether deserved or not, having ‘plc’ at the end of a company name can add standing and prestige. There is a sense of status about a public limited company that its private company counterpart just doesn’t quite have. This can influence how the business is viewed. While often more imagined than real, this perception of being more established, larger or more powerful can affect the behaviour of customers, suppliers and employees.
More people are likely to be aware of the company if it is public. That’s particularly true if it’s listed on a stock exchange. In that case, it’s more likely to receive attention from the media and investment professionals. This is effectively free publicity, meaning more people will recognise the company and its products or services. Better brand recognition can lead to more sales. It may also make you more visible to valuable potential business partners.
Credibility and confidence are reinforced by:
Operating under a stricter legal regime than private companies in many areas
Higher share capital requirements
Greater transparency (for example, in the required form of accounts)
For listed companies, the indirect endorsement of having their shares listed on a recognised exchange
Again, these factors can affect the behaviour of (potential) shareholders, customers and business partners.
6. Transferability of shares
The shares of a public limited company are more easily transferable than those in the private equivalent. This means shareholders benefit from liquidity. If shares are quoted on a stock exchange, shareholders and potential shareholders will generally find it easier to transfer shares in the company. However, the market still relies on willing purchasers and sellers being available and trading in many public companies is still infrequent.
The fact the shareholders are less bound to remain with the company can give them comfort. This may help the company by making people more willing to invest in the first place.
Additional restrictions on transferability of shares often apply in private companies. Without these, it’s also easier to deal with situations like a shareholder’s death, allowing shares to be transmitted in line with the terms of any will.
7. Exit Strategy
Going public can enhance the options for the founders to exit the business at some point in the future, if they wish to do so. Both higher transferability of shares and the increased visibility of the business and its performance may increase the chances of bid interest from potential suitors.
