Why Would You Prefer Public Limited Company over Private Limited Company?

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Subject: Why would you prefer public limited company over private limited company?

Course: LAW200

Section: 08

Semester: Spring 2017

Prepared for:

Saquib Rahman

Lecturer, Department of Law

School of Business and Economics

North South University, Dhaka.

Prepared By

Md. Fouad Hasan

ID#: 1320158030

Sec: 08, Course: LAW200

Semester: Spring2017

Why would you prefer public limited company over private limited company?  

There are many reasons to choose public limited company over privet limited company, some reasons are showed below:

Rising capital through public issue of share: The most obvious advantage of being public limited company is the capability to increase share capital, where the company is listed on a recognized exchange. Public limited company can sell its share to the public and any people can able to invest their money. Typically, the capital that can be increased much larger than a private limited company.

Transferable shares: Shares of a public limited company are bought and sold in a stock exchange market. They are freely transferable between its members and people trading in the stock exchange. But in private limited company share can sold only when all shareholders become agree.

Overlap of shareholders and management: For most private companies, the shareholders are generally involved in the management of the company. In many startups for example, the shareholders are often the founders. This aligns shareholder and management goals. A public company does not enjoy this luxury, and pressure from, and reporting to, external investors (the shareholders) can slow down the pace at which decisions get made. Analysts take this alignment, or lack thereof, into account when valuating companies.

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. While an angel investor may provide a large amount of capital and expertise, the founders may not be comfortable with the level of influence over the company’s direction that the angel will often expect.

Other financial 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.

The demands of being a public limited company and maintaining a stock exchange listing, for example, can help to improve a company’s creditworthiness when issuing corporate debt (and therefore reduces 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 favorable interest rates and repayment terms on loans.

Growth and expansion opportunities: The value of being able to raise finance is in how it can be employed to serve the business. By having more finance potentially more readily available and on better terms than a private company, the public limited company can be in an advantaged position to: Pursue new projects, new products or new markets, make capital expenditure to support and enhance the business, make acquisitions, Fund research and development, pay off existing debt, Grow organically.

Transferability of shares: The shares of a public limited company are more easily transferable than those in the private equivalent, meaning 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 – although the market still relies on willing purchasers and sellers being available