PLCs are an essential part of the business landscape and are a necessary component of the modern economic system. Here, we take a look at what the term means, how PLCs operate and what the main advantages and disadvantages of this type of organisation are.
PLC definition business
PLC stands for “Public Limited Company” and instantly informs individuals that a business has been floated on the stock market and that shares are available to purchase by the general public. While PLC is commonly used in the UK, many other countries, most notably the United States, utilise Inc. or Ltd. Both of these have the same meaning as PLC and are virtually interchangeable.
Generally, those companies that have been taken public are relatively large, as it requires a significant amount of financial clout to be able to float a business on the stock exchange. This means that PLC is a term that’s reserved for established businesses that have a relatively long history and a well-known and reputable brand.
What is a PLC business entity?
PLCs start life in the same way as any other business. Two or more individuals decide that they want to start a company and file the necessary documents to do so. No companies are immediately taken public, as investors are typically incredibly wary of purchasing shares in a new, untested business that has no way of demonstrating its success. However, having built a reputation, generated interest in the business, and begun to identify potential investors, the company can register with the London Stock Exchange, and a public offering arranged.
To be floated and made public, the company must meet some requirements. For instance, the company must register as a public company, it must meet the regulatory requirements set by London Stock Exchange (e.g. its financial disclosure rules), and it must have a minimum of £50,000 share capital.
PLC business features
While the two defining features of a PLC are the availability of shares to the public and their size, there are also a number of other defining characteristics. For example, PLCs are limited liability companies. This means that those who have invested in the company are not liable for any of the company’s debt over and above the amount they have invested. Likewise, if the company is sued, individual investors are not personally culpable for the company’s actions.
It’s also true that there are many exceptions to these rules. For instance, some PLCs aren’t publicly traded but attach the PLC suffix to the end of their name because they meet the necessary conditions to list on the London Stock Exchange or a company that has been taken public owns them.
PLC business examples UK
Any company that’s listed on the London Stock Exchange is, by definition, a PLC. This means that you can find a long list of PLCs just by taking a look at the stock exchange listings. Some of the country’s most prestigious businesses are PLCs, with the 100 largest businesses being grouped to form a particularly special group of companies known as the FTSE 100. This stands for the Financial Times Stock Exchange 100 and is comparable to the Dow Jones in the USA.
The FTSE 100 contains companies like Barclays plc, British American Tobacco plc, Marks & Spencer Group plc, and easyJet plc, amongst others. It is often thought of as providing insight into the health of the broader economy and is an essential indicator of financial instability. This is due to the way in which investors can express their financial hopes and concerns via the purchase of the stocks and shares offered by PLCs.
Who owns PLC companies?
When a company decides to go public, it is choosing to sell parts of itself to individuals who believe the value of the business will go up in the future. Before the company is floated, they must have generated a minimum of £50,000 in share capital. This means that they must have agreed to the sale of at least £50,000 of shares to individuals known as subscribers. Of this total, at least £12,500 must have been paid up front.
These subscribers are now the company owners. They own a percentage of the company equal to the value of their shares. A PLC may raise its share capital to allow for more significant investment and the raising of more capital for the business.
PLC business management
Generally, a company is taken public to facilitate growth by the raising of investment capital. Once this occurs, the business has specific responsibilities to those shareholders who have invested funds. PLCs are normally managed by a board of directors to ensure that these responsibilities are met.
The shareholders, who are also able to influence many other critical decisions, appoint directors. However, day-to-day management of the company is left to the directors. They must promote the success of the company and act diligently and skilfully, taking reasonable care to ensure that the business is managed in the most effective and safe way possible.
PLC business advantages and disadvantages
There are many key benefits to operating a PLC, rather than a privately owned business. First and foremost, the ability to raise capital is an essential means of facilitating growth. At some stage, a company reaches a size that makes it difficult to find investment capital in any other form. Second, it distributes the financial strain of funding the business between a large number of people. Finally, as a limited liability organisation, a PLC ensures individuals aren’t fully liable for the actions of the company, making investment far less risky and cultivating a climate in which investment in large businesses continues to stimulate economic growth.
On the other hand, taking a company public also involves ceding control of the business to shareholders. This means that it could be taken over by an investor that can purchase a majority shareholding. Financial regulation is also a great deal stricter for PLCs, meaning this type of business has to meet more stringent conditions if it’s to operate within the law.
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