Business Ownership for Established Businesses (OCR GCSE Business): Revision Note
Exam code: J204
Private limited company or public limited company?
Established businesses may consider changing their legal ownership for a range of reasons
To raise finance
To increase the business profile
To attract new owners who can contribute time, ideas and share responsibilities
A range of factors need to be considered before changing the legal ownership of a business
Changing ownership: factors to consider
Factor | Explanation |
|---|---|
Objectives for business growth |
|
Willingness to dilute control |
|
Implications of changing legal structure |
|
Case Study
AMF Limited
AMF Ltd is a large, fast-growing commercial cleaning company
It has been a family-owned business since it opened in 1982
It has a good credit rating and has used loans to finance growth in the past
It is seeking to raise substantial funds to finance further growth
AMF Ltd can either:
Remain as a private limited company and take out a loan
Become a public limited company
Recommendation
Remaining as a private limited company would ensure AMF remains as a family business
The business may not need to raise large amounts of capital from the sale of shares as it has successfully raised the finance it needed to grow in the past by borrowing
The decision depends on how much finance is required, as only a flotation could raise a very substantial level of finance
Case Study
Varitool Ltd
Having achieved success in the UK, Varitool Ltd is looking to open retail outlets across Europe
The company is owned by its founder and a range of private investors
Its owners want to maximise their financial rewards
It requires significant amounts of capital to fund research and the purchase of suitable premises
Varitool Ltd. can either:
Remain as a private limited company and take out a loan
Become a public limited company
Recommendation
Becoming a public limited company could raise a significant amount of capital through stock market flotation
This could fund the ambitious growth plans
Existing owners would be able to take a large financial reward from flotation
The decision depends on the attitude of current owners toward the potential for loss of control over the business, especially for its original founder
Examiner Tips and Tricks
The above examples demonstrate the importance of retaining - or reliquishing - control in the decision to become a public limited company. If the case study in the exam is focused on a family-run business, it is perfectly acceptable to make the assumption that family members would be unlikely to want to lose control over a company.
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