If you’re going public, then you’re going to be selling shares of your company. It’s one of the most exciting events in the life of any company. It can also raise a lot of new capital that can take your business to even higher heights. Having shareholders also means you’re responsible to more people for the success of your business and there can be extensive reporting requirements that you must release on a regular basis.
Here are some of the other key pros and cons of a Public Limited Company (PLC) to consider before filing the papers to become one.
What Are the Pros of a PLC?
1. You still have a limited liability in case something bad happens.
If your company experienced a devastating loss for almost any reason and had to shed its assets to pay creditors, then your personal assets would not be at risk like they would be in a sole proprietorship or some partnerships. Unless you used your home, your vehicle, or other assets as collateral to get the business off the ground, these items are never at risk as you operate your business.
2. You receive the opportunity to raise the capital that you need.
Because you’re issuing shares as a PLC, you’re gaining the chance to add capital when you need it. Those shares may even grow in value over the time that you hold them, which increases your personal net worth and encourages further investment from new and existing shareholders. If you can create success, then you’ll be building the foundation for even more success later on down the road.
3. It gives your company credibility.
Let’s compare three types of businesses that do the exact same thing. One is a sole proprietorship. The second is a general partnership. The third is a PLC. With whom would you be the most likely to do business? Most folks would say the PLC because being public gives the company added credibility and value. Customers know that a public business isn’t just going to disappear the next day with their hard earned cash. They’re accountable to others at a different level than the other two business structures.
4. It gives a business more resale value.
If you are the founder or principal owner of a business that goes public, then your path toward an exit becomes much easier to make. Because you’re a PLC, your business structure makes it much easier for ownership groups or other corporations to buy you out. This can still happen in any business structure, of course, but because you’ve already limited your liability, you’re also limiting the liability of future owners as well.
5. Your stock can be used to facilitate the purchase of future acquisitions.
Because public stock has a value associated with it, often higher than shares that are privately held and traded, they can be used to purchase additional assets that your company may want or need. Depending on the purchase, the entire acquisition could potentially be paid in stock if you so wished. Stock can also be used as a benefit through the issuance of stock options, giving you much more financial flexibility.
6. It allows for diversification.
Both you and your shareholders get the chance to diversify an investment portfolio when you take your stock public. This way you are able to ensure that whatever wealth you have built already has the best chance to maintain its value over time.
7. Compensation levels in a PLC are typically higher.
Because there is more capital involved through the sale of shares and because there is a need for high quality managers to continue profitable growth, compensation levels can be quite high at a PLC. This is especially true when compared to self-employed business owners or managers in private companies. The goal is to attract the best talent and most PLCs and their shareholders are willing to invest more into these salaries so their own financial stability can be achieved.
What Are the Cons of a PLC?
1. A PLC can be a bit difficult to get set up.
Unlike a sole proprietorship or a general partnership which requires very little paperwork, you’ll need to file a large amount of documentation to take your company public. Your business name will need to be registered and you’ll need to submit your final accounts in addition to setting up a board and creating your articles of association.
2. You’ll need to share your profits.
Although not every PLC will pay out extensive dividends to shareholders, you’ll still be paying out more of your profits when you have taken your company public. You’re responsible for their financial well-being from the investment in addition to your own, which means the decisions you can make for the company may be limited because you must keep the company in the black as much as possible.
3. You have less overall control of the company.
Shareholders are going to have a say in the direction the company takes. They have the ability to elect directors and those folks have the ability to appoint managers that oversee the daily operations of the business. If you and your shareholders aren’t on the same page, the company could stall because of the differences in opinion.
4. There will be more expenses.
Shareholders have the opportunity to view the minutes from virtually every executive-level meeting that happens. You’ll also be hosting a shareholder meeting at lease once per year, if not more often. You’ll be investing manpower into the creation of the reports that are required to be submitted for regulatory compliance or you’ll be contracting that need out to others to do the work on your behalf.
5. You’ll experience double taxation at times.
Not only will the profits the company is able to create be subjected to whatever corporate level taxes are in force at the time, but any personal dividends that are earned from owning shares of the company will also be taxed. You would also be taxed for any salary you would draw from the company for your services rendered.
6. Sensitive information about the company must be revealed consistently.
It’s not just your financials that must be released to the public under current regulations as a PLC. A company must also release what their ongoing business strategies happen to be, what compensation arrangements have been formed, and even what executives are earning as a salary. Financial results that aren’t as positive as some investors would like to see, combined with high salaries and other expenses, can drive the value of shares lower.
7. Control of the company can be taken away.
If a group of shareholders is able to take a majority control through the purchase of shares, then they can dictate the direction the company takes. This includes removing the existing managers and executives if they so choose because they have the largest voting block.
The pros and cons of a PLC show that going public is generally a good thing. As long as the negatives can be proactively controlled, it is generally the next stage of evolution for every business.