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What is the difference between the public sector and public limited companies?

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anna daniels

on 15 December 2010

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Transcript of What is the difference between the public sector and public limited companies?

What is the difference between the public sector and public limited companies? Task: You shall be given some cards which show photographs of public sector businesses and PLC's - can you tell which is which? Learn more and add your comment about this lesson on the Blog at http://btecbusiness.posterous.com Useful websites:
http://www.londonstockexchange.com/home/homepage.htm A public Limited Company is a limited liability company that may sell shares to the public.
It operates to make a profit for its shareholders.
It’s shares are bought and sold on the Stock Exchange. Public Sector – consists of both central government and local government organisations, the firms and industries in this sector providing services and being run mainly under State control. The main advantage of being a Public Limited Company (sometimes referred to as a PLC) is that large amounts of capital can be raised quickly.
Further advantages include:
•Benefit from bulk buying (get things cheaper).
•A PLC can easily specialise in various different areas.
One main disadvantage is that control of a business can be lost by the original shareholders if large quantities of shares are purchased as part of a “takeover bid”. It is also costly to have shares quoted on the Stock Exchange.

Other disadvantages of PLC's:

•The business may be too large, become inefficient and suffer from diseconomies of scale.
•Ownership can change quickly through takeover bids by other companies buying shares.
•Annual accounts have to be open to public inspection.
•Shareholders may want short term profits, whilst the directors want to invest profits for long term growth.
•formation of a PLC is complicated and expensive.
•the directors interests may differ from those of the shareholders, because ownership and control have become separate
•the plc may be dominated by a few shareholders, e.g. by institutional investors such as pension funds and insurance companies A limited company is a business that is owned by its shareholders, run by directors and most importantly whose liability is limited.

Limited liability means that the investors can only lose the money they have invested and no more. This encourages people to finance the company, and/or set up such a business, knowing that they can only lose what they put in, if the company fails.

For people or businesses who have a claim against the company, “limited liability” means that they can only recover money from the existing assets of the business. They cannot claim the personal assets of the shareholders to recover amounts owed by the company. Limited companies can either be private limited companies or public limited companies. The difference between the two are:

Shares in a public limited company (plc) can be traded on the Stock Exchange and can be bought by members of the general public. Shares in a private limited company are not available to the general public; and
The issued share capital of a plc (the initial value of the shares put on sale) must be greater than £50,000 in a plc. A private limited company may have a smaller share capital

A private limited company might want to become a “plc” because:

Shares in a private limited company cannot be offered for sale to the general public, so restricting availability of finance, especially if the business wants to expand. Therefore, it is attractive to change status.
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