The Types of Limited Companies

The limited companies have a limited liability, that means it is the only liability a shareholder has and it is the amount invested in the company, not the total wealth of the shareholder. There are two types of limited companies: First, Private limited companies that are a small or medium-sized business owned by shareholders who are often members of the same family; this company cannot sell shares to the general public. Second, Public limited companies that are often a large business, with legal right to sell shares to the general public - share prices are quoted on the national stock exchange. There are a number of possible features of converting private limited company to public limited company. These features can be explained in order to assess the benefits and losses of this conversion.

The Benefits of Converting from Private to Public Limited

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The benefits of this conversion include the company being able to sell shares to the general public, raise potentially large sum of money and have a better access to capital. Therefore, making a business liquid, as shareholders are able to buy and sell their shares, and financing different departments of a business. Moreover, being a public limited gives a company a more prestigious profile that attracts more shareholders and increases the demand of the goods and services provided by that specific company, on top more business opportunities for more capital to be gained. Furthermore, the risk of a company is divided as more people that buy shares in a public limited company, the more the risk is spread out. Also, it is safer than relying on one or two angel investors, as the level of influence is spread out wider amongst many new shareholders. By having less risk, it gives the perfect opportunity for growing and expanding a business - investing into new projects and products, through the money gained via shares.

The Drawbacks of this Conversion

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On the contrary, there are a few drawbacks of the conversion from private limited to public limited company. Once a company is listed on a stock exchange, the company is likely to have a much larger number of external shareholders, to whom company directors will be accountable and it will be vulnerable to takeovers. It's useful having the risk spread out, but that also means the company's ownership is at stake. Also, a public limited company has a Higher transparency as consistent accounting updates are required by the stockholders to get an exact idea regarding how their shares are faring. A period of 6 months is allotted for financial records to be produced at the end of the financial year and typically, all the account of public limited companies are published publicly so they can be thoroughly scrutinized by auditors. This opens Public limited companies to criticism by the masses.

Conclusively, whether this conversion from private limited to public limited is beneficial or not solely depends upon the current financial and social position and the caliber of your company.