business-structure business-ownership-companies

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Exam code:9609

Private limited companies

Private limited companies are owned by one or more shareholders
- The business name is suffixed with ‘Limited‘ or ‘Ltd‘ in the UK and and S.A. in Spain
- Shareholders are often family members or close friends
  - Private limited companies can remain as family-owned businesses for many years, as shares are passed from generation to generation
- Shareholders are usually also directors who run the business on a day to day basis

Example	Description
Huawei Technologies Co. Ltd	Chinese private tech giant making telecom equipment, smartphones, cloud services
The LEGO Group (Denmark)	Family‑owned toy company making interlocking bricks and themed sets worldwide
Timpson Ltd (UK)	A UK chain offering shoe repairs, key cutting, dry-cleaning and photo services The company is known for recruiting and training ex-offenders

Private limited companies may be more suitable than sole trader or partnership ownership 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

Advantages	Disadvantages
Shareholders benefit from limited liability for debts incurred by the company Access to greater finance from investors and lenders who consider limited companies to be less risky Ownership can be easily transferred by selling shares Business continuity, as the business does not die with its original owner	More expensive and time-consuming to set up, as legal advice is often required More complex operational rules than sole traders or partnerships Annual financial reporting and auditing are required Shareholders may have little control over the company, as the founder usually imposes their own agenda

When a business is growing rapidly, it may require a significant amount of capital to fund its expansion
To secure this funding, it may choose to transition from a private limited company (Ltd) to a public limited company (Plc)
Public limited companies are large businesses that sell shares publicly on the stock exchange (e.g. the London Stock Exchange)
- Public limited companies have the suffix ‘PLC‘ in the UK, ‘Inc‘ in the US and ‘GmBH‘ in Germany
- They must publish detailed financial accounts each year
- They may have many thousands of individual shareholders
  - Each ordinary share allows its owner a vote at the Annual General Meeting
  - Shares are often held by finance companies in pension funds and investment products

Example	Description
Toyota Motor Corporation (Japan)	Vehicle manufacturer, producing cars, hybrids and trucks worldwide
PepsiCo, Inc. (USA)	Global food and drink company behind Lay’s crisps, Doritos snacks and Pepsi soft drinks
Deliveroo plc (UK)	London’s largest tech listing of 2021, Deliveroo provides on-demand food and grocery delivery services

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 Applied Nutrition Plc floated in late 2024, around £220 million was raised for the firm

Advantages	Disadvantages
Significant amounts of capital can be raised Risks are spread among a large group of shareholders Company shares can be bought and sold easily on a public stock exchange A board of directors, made up of individuals from outside of the company management and major shareholders, can bring in expertise/perspectives that can promote growth PLCs have high visibility with customers, suppliers, and potential investors, which can help grow its customer base As large businesses PLCs may be able to dominate the market and benefit from economies of scale	PLCs must comply with complex legal and financial regulations such as Completing regular financial reports Maintaining accurate accounting records Holding annual general meetings Setting up a public limited company can be expensive Fees for legal and accounting advice Costs of the flotation such as producing a prospectus and public relations The management team are likely to prioritise short-term financial performance (e.g. paying staff less) over long-term strategic planning (retaining talented staff) so as to maximise profits for shareholders Hostile takeovers are a risk, as shares can be bought by rival businesses

Advantages

Disadvantages

Significant amounts of capital can be raised
Risks are spread among a large group of shareholders
Company shares can be bought and sold easily on a public stock exchange
A board of directors, made up of individuals from outside of the company management and major shareholders, can bring in expertise/perspectives that can promote growth
PLCs have high visibility with customers, suppliers, and potential investors, which can help grow its customer base
As large businesses PLCs may be able to dominate the market and benefit from economies of scale

PLCs must comply with complex legal and financial regulations such as
- Completing regular financial reports
- Maintaining accurate accounting records
- Holding annual general meetings
Setting up a public limited company can be expensive
- Fees for legal and accounting advice
- Costs of the flotation such as producing a prospectus and public relations
The management team are likely to prioritise short-term financial performance (e.g. paying staff less) over long-term strategic planning (retaining talented staff) so as to maximise profits for shareholders
Hostile takeovers are a risk, as shares can be bought by rival businesses