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Introduction
Public limited companies refer to companies which are limited by shares. In United Kingdom, they are abbreviated as and PLC while in United States as LLC and they are often listed in a country’s stock exchange with the exception of certain public companies that are incorporated under special legislation are exempted by law from bearing such abbreviations. Corporations that can be transformed into plc in the UK include private limited as well as unlimited ones, which have share capital. However, unlimited companies without share capital cannot be registered as public limited companies.
The process of registration involves passing of a special resolution and filling in an application form to the company register. In United Kingdom, it is not compulsory for public limited companies to offer their shares to the public. However, most of the firms prefer to do so through the (London) Stock Exchange and ‘Alternative Investment Market.’ Upon registration as a public limited company, the company is required to adjust its memorandum to indicate that it is a limited company and to further increase its share capital to a value exceeding five hundred thousand pounds as per the statutory requirement. Its new memorandum and articles of association should conform to the requirements of a public limited company.
BT Group plc
BT Group plc is a public limited company based in London, United Kingdom. It provides telecommunication services to over one hundred and seventy countries across the globe. Its shares are listed in both the London Stock exchange and New York stock Exchange. The company, which was initially owned by the British government, was privatized in 1982 when the government issued out 51% of the shares to private investors. In 1984, the company was transformed into a public limited company with more than 50% of its shares being sold out to the public (BT Group 2011).
This move positively impacted on the overall performance of the organization. The plc was able to compete effectively in UK and the rest of the world which enabled it to expand its operations globally. Further the company gained increased commercial freedom which enabled it to enter into new strategic ventures and to further enhance its operations. In the early 90s, the government sold 46.7% of its remaining shares and in 1993 the government further sold its remaining shares which introduced over seven hundred thousand share holders in the market (BT Group 2011).
The company’s transformation into a public limited company is associated with numerous benefits that are also evident in other public limited companies across the world. In addition to raising money for the treasury, the company benefited by acquiring new equity capital, increased value and market share and enhanced ability to obtain funding necessary to expand its operations as discussed below.
Advantages of public limited companies
A company’s initial public offer (IPO) refers to the first sale of share to the public by a company (Brough 2005). Companies launch IPOS to raise additional capital which can be used to finance expansion plans and other projects within the organization. Through the initial public offer, BT Group was able to generate public awareness which stemmed from extensive marketing of the company to investors. Through the initial public offer, the company was able to increase its wealth and also generated money for the treasury. This was possible without necessarily dividing authority as in the case of business forms such as partnership.
Increase in financial capital
The move by a company to issue its shares to the public allows such companies to raise additional capital which finances various corporate operational processes. This funding is important in facilitating mergers and acquisitions, enhancing research and development and expansion efforts of the company (Siegel & Shim 2008). This is evident in BT Group which after transforming into a public limited company was able to merge with MCI Communication Corporation with which it launched concert communications services which enhanced global communication service provision.
Liquidity
Shares of a public limited company are traded in the stock exchange. Since the shares traded have an assigned market value, they can easily be resold to provide liquidity. This enables the company to provide its employees with stock incentive packages and the investors with an opportunity to earn income from company shares (Brough 2005). Through the share market, BT Group plc value can be easily assessed which facilitates in cases where the company is seeking to acquire or merge with companies such as MCI and also helps the investors to be aware of the present value of the shares. Investors not only benefit from the potential increase in the value of stock, but also from the liquidity of publicly held stock which can be easily changed into cash.
Increase in market share
Initial public offer is often associated with increased public awareness of the company due to its ability to generate publicity (Bhattcharya 2004). To transmit information to potential investors, the company often engages in extensive marketing and publicity of the IPO which in turn acts as a marketing tool that influences a new group of potential consumers to the company’s products. This is evident in the case of BT Group where the company managed to launch global services after going public.
Risk reduction
Public limited companies have limited liability which means that the shareholders are liable to debt up to the amount of shares that they hold in the company (Craig & Campbell 2005). This means that if for instance BT Group was declared bankrupt, its shareholders would only lose what they have invested in the company unlike the case of unlimited companies or sole proprietorship where owners risk losing their personal assets. Other advantages associated with public limited companies such as BT Group include easier financing, economies of scale, specialization, and monopoly power.
However, despite the advantages associated with a company going public, such companies often face various challenges that are worth noting. The need for increased disclosure to the stakeholders which requires constant and periodic financial reporting may lead to additional costs (Chandratre 2009). There are also numerous rules and regulations governing such companies which are closely monitored by regulating authorities.
The costs associated with compliance to rules and regulations are substantially high and may result in financial strain on some companies. In addition the public limited companies are often faced by numerous pressures emanating from the market which shifts focus from achievement of long term goals to short term goals. Therefore before a company decides to go public, it should conduct a critical analysis of the situation and assess all the potential advantages and disadvantages that are likely to arise in order to determine whether such a move is in the best interests of the company.
Reference List
Bhattcharya, H. 2004. Working Capital Management: Strategies and Techniques. London, PHI Learning Pvt Ltd.
Brough, H. G., 2005. Private Limited Companies: Formation and Management. London, Sweet & Maxwell.
BT Group, 2011. Companies’ Official Website, BT plc. Web.
Chandratre ,K.R. 2009. All about Private Limited Companies. London, Bharat Law House Pvt. Ltd.
Craig, T., & Campbell, J, D., 2005. Organization and the business environment, UK: Butterworth-Heinemann.
Siegel, J. G., Shim, K. J., 2008. Financial Management. London, Barron’s Educational Series.
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