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Business Ownership: Companies (Cambridge (CIE) A Level Business): Revision Note

Exam code: 9609

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on

Private limited companies

  • Private limited companies are owned by one or more shareholders

    • The business name is suffixed with 'Limited' or 'Ltd' in the UK and and S.A. in Spain

    • Shareholders are often family members or close friends

      • Private limited companies can remain as family-owned businesses for many years, as shares are passed from generation to generation

    • Shareholders are usually also directors who run the business on a day to day basis

Examples of private limited companies

Example

Description

Huawei Technologies Co. Ltd

  • Chinese private tech giant making telecom equipment, smartphones, cloud services

The LEGO Group (Denmark)

  • Family‑owned toy company making interlocking bricks and themed sets worldwide

Timpson Ltd (UK)

  • A UK chain offering shoe repairs, key cutting, dry-cleaning and photo services

  • The company is known for recruiting and training ex-offenders

  • Private limited companies may be more suitable than sole trader or partnership ownership if setting up the business involves significant capital investment, or involves some risk

    • The owners personal assets are protected, as they have limited liability

    • Most private limited companies are owned and controlled by just one person (just like sole traders) who has made the decision to reduce their personal financial risks

Evaluating private limited companies

Advantages

Disadvantages

  • Shareholders benefit from limited liability for debts incurred by the company

  • Access to greater finance from investors and lenders who consider limited companies to be less risky

  • Ownership can be easily transferred by selling shares

  • Business continuity, as the business does not die with its original owner

  • More expensive and time-consuming to set up, as legal advice is often required

  • More complex operational rules than sole traders or partnerships

  • Annual financial reporting and auditing are required

  • Shareholders may have little control over the company, as the founder usually imposes their own agenda

Public limited companies

  • When a business is growing rapidly, it may require a significant amount of capital to fund its expansion

  • To secure this funding, it may choose to transition from a private limited company (Ltd) to a public limited company (Plc)

  • Public limited companies are large businesses that sell shares publicly on the stock exchange (e.g. the London Stock Exchange)

    • Public limited companies have the suffix 'PLC' in the UK, 'Inc' in the US and 'GmBH' in Germany

    • They must publish detailed financial accounts each year

    • They may have many thousands of individual shareholders

      • Each ordinary share allows its owner a vote at the Annual General Meeting

      • Shares are often held by finance companies in pension funds and investment products

Examples of public limited companies

Example

Description

Toyota Motor Corporation (Japan)

  • Vehicle manufacturer, producing cars, hybrids and trucks worldwide

PepsiCo, Inc. (USA)

  • Global food and drink company behind Lay’s crisps, Doritos snacks and Pepsi soft drinks

Deliveroo plc (UK)

  • London’s largest tech listing of 2021, Deliveroo provides on-demand food and grocery delivery services

  • Selling shares on the stock exchange for the first time is called flotation or going public

  • Flotation is a complex legal process that allows large amounts of share capital to be raised

    • E.g. When Applied Nutrition Plc floated in late 2024, around £220 million was raised for the firm

Evaluating public limited companies

Advantages

Disadvantages

  • Significant amounts of capital can be raised

  • Risks are spread among a large group of shareholders

  • Company shares can be bought and sold easily on a public stock exchange

  • A board of directors, made up of individuals from outside of the company management and major shareholders, can bring in expertise/perspectives that can promote growth

  • PLCs have high visibility with customers, suppliers, and potential investors, which can help grow its customer base

  • As large businesses PLCs  may be able to dominate the market and benefit from economies of scale

  • PLCs must comply with complex legal and financial regulations such as

    • Completing regular financial reports

    • Maintaining accurate accounting records

    • Holding annual general meetings

  • Setting up a public limited company can be expensive 

    • Fees for legal and accounting advice

    • Costs of the flotation such as producing a prospectus and public relations

  • The management team are likely to prioritise short-term financial performance (e.g. paying staff less) over long-term strategic planning (retaining talented staff) so as to maximise profits for shareholders

  • Hostile takeovers are a risk, as shares can be bought by rival businesses 

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    Author
    Reviewer
    Lisa Eades

    Author: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

    Steve Vorster

    Reviewer: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.