Public limited companies are similar to private limited companies, but they are able to sell shares to the public. A private limited company can be converted into a public limited company by:
1. A statement in the Memorandum of Association must be made so that it says this company is a public limited company.
2. All accounts must be made public.
3. The company has to apply for a listing in the Stock Exchange.
A prospectus must be issued to advertise to customers to buy shares, and it has to state how the capital raised from shares will be spent.
Advantages
- Limited liability.
- Continuity.
- Potential to raise limitless capital.
- No restrictions on transfer of shares.
- High status will attract investors and customers.
Disadvantages
- Many legal formalities required to form the business.
- Many rules and regulations to protect shareholders, including the publishing of annual accounts.
- Selling shares is expensive, because of the commission paid to banks to aid in selling shares and costs of printing the prospectus.
- Difficult to control since it is so large.
- Owners lose control, when the original owners hold less than 51% of shares.
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