Business-Ownership-For-Established-Businesses

AMF Limited

• AMF Ltd is a large, fast-growing commercial cleaning company

  • It has been a family-owned business since it opened in 1982

  • It has a good credit rating and has used loans to finance growth in the past

• It is seeking to raise substantial funds to finance further growth

• AMF Ltd can either:

  1. Remain as a private limited company and take out a loan

  2. Become a public limited company

Recommendation

• Remaining as a private limited company would ensure AMF remains as a family business

• The business may not need to raise large amounts of capital from the sale of shares as it has successfully raised the finance it needed to grow in the past by borrowing

• The decision depends on how much finance is required, as only a flotation could raise a very substantial level of finance

Varitool Ltd

• Having achieved success in the UK, Varitool Ltd is looking to open retail outlets across Europe

  • The company is owned by its founder and a range of private investors

  • Its owners want to maximise their financial rewards

• It requires significant amounts of capital to fund research and the purchase of suitable premises

• Varitool Ltd. can either:

  1. Remain as a private limited company and take out a loan

  2. Become a public limited company

Recommendation

• Becoming a public limited company could raise a significant amount of capital through stock market flotation

• This could fund the ambitious growth plans

• Existing owners would be able to take a large financial reward from flotation

• The decision depends on the attitude of current owners toward the potential for loss of control over the business, especially for its original founder

The above examples demonstrate the importance of retaining – or reliquishing – control in the decision to become a public limited company. If the case study in the exam is focused on a family-run business, it is perfectly acceptable to make the assumption that family members would be unlikely to want to lose control over a company.