Private & Public Limited Companies (Edexcel IGCSE Business) : Revision Note

Private Limited Companies

• A private limited company is a business that is owned by one or more shareholders whose responsibility for debts is limited to the level of their initial investment (the price they paid for the shares)
  

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

  • Shareholders are often family members or close friends

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

  • Private limited companies are registered with Companies House and need to submit details of financial performance and changes in ownership each year
    

• Private limited companies may be more suitable than sole traders or partnerships 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 by forming a company that provides them with limited liability protection
    

• In some countries it is possible to form a limited liability partnership

  • Sleeping partners invest money but take no part in decision-making

  • At least one partner must continue to accept unlimited liability
     

Advantages & Disadvantages of Private Limited Companies

Public Limited Companies

• Public limited companies are large businesses that sell shares publicly on the stock exchange (New York Stock Exchange; London Stock Exchange etc.)

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

  • 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 Google floated in 2004 $23 billion was raised in one day

Advantages & Disadvantages of Public Limited Companies

Public Corporations

• Public corporations are owned and controlled by the government
  

  • They are usually funded through tax though some earn revenue from sales

  • They operate as incorporated entities that are separated by law from the government

  • Profits (surpluses) are reinvested in the business or returned to the government

  • They exist to provide public services such as healthcare, transport and broadcasting services

• Some public corporations have a majority share ownership held by the government, but may have also sold a large number of shares (but less than 50%) to the private sector
   

Examples of Public Corporations

• Public ownership has generally declined in recent years
  

  • Many state-owned businesses in Eastern Europe have been privatised since 1990 following the break-up of the Soviet Union

  • Profitable organisations in sectors such as telecommunications in the UK and Australia have been transferred to the private sector, raising large sums of revenue for governments to spend on other public services
     

Benefits & Drawbacks of Public Ownership