Public Limited Companies (AQA A Level Business): Revision Note

What is a public limited company?

• A public limited company (plc) is a company whose shares can be bought and sold by any member of the public on a stock exchange

• Like a Ltd company, a plc is an incorporated business with its own legal identity, but it faces much stricter regulation and reporting requirements

Examples of public limited companies

Who controls a public limited company?

• Shares in a plc can be owned by thousands of shareholders, including individual investors and large institutional investors such as pension funds

  • Any individual or organisation holding more than 50% of shares has effective control of the business

  • In large plcs, shareholding is so widely spread that no single shareholder typically holds a controlling stake

• All shareholders benefit from limited liability - if the company fails, shareholders can only lose the value of their original investment and their personal assets are fully protected

  • The plc is a separate legal entity - its debts belong to the company, not to its owners

  • This protection encourages public investment by reducing the personal risk of buying shares

• The board of directors, elected by shareholders at the Annual General Meeting (AGM), has significant day-to-day power

  • The separation of ownership and control - where the directors who run the business are not the same people as the shareholders who own it - can lead to conflicts of interest

• A key risk is a hostile takeover

  • A competitor or investor could buy a majority of shares and seize control without the agreement of existing management

The objectives of public limited companies

• A plc's objectives are strongly shaped by the need to satisfy shareholder expectations of financial return

  • Primary financial objectives include maximising profit, growing the share price and paying regular dividends

  • Pressure from shareholders creates a focus on short-term performance, which can conflict with longer-term strategic goals

• Annual reports and accounts are publicly available, so a plc's objectives and performance are highly transparent and open to external scrutiny

• Plcs also face public and media pressure to demonstrate responsible behaviour

  • Non-financial objectives such as sustainability and corporate social responsibility are increasingly important

Public limited company profits

• Profits are usually distributed to shareholders as dividends, paid in proportion to the number of shares held

  • The proportion of profit paid as dividends versus retained profit is a key strategic decision for the board

  • The board of directors recommends a dividend payment, which shareholders vote on at the AGM

• Shareholders in large plcs expect regular, consistent dividends, creating sustained pressure on management to maintain profitability

  • Some plcs also return money to shareholders through share buybacks, where the company repurchases its own shares to increase the value of remaining shares

Sources of finance for public limited companies

• A plc has access to the widest range of finance of any business form

• The ability to issue shares publicly is the defining financial advantage of a plc over a private limited company

  • It enables investment in large-scale growth, acquisitions or infrastructure

Advantages and disadvantages of public limited companies