Growing into a public limited company

What a plc is

A plc is an incorporated business with limited liability whose shares can be offered to the public and traded on a stock exchange once it is listed. It is run by a board of directors elected by the shareholders. Countries usually set a minimum share capital for a plc and require it to publish detailed accounts.

Flotation

Flotation (an initial public offering, IPO) is when a company first sells shares to the public and lists them on a stock exchange.

Why float:

• Raise large sums of capital for expansion.
• Let the original owners or early investors (such as venture capitalists) sell some shares and turn their stake into cash.
• Raise the firm's profile and credibility; listed shares can be used to buy other companies.

Drawbacks of becoming a plc

• Flotation is expensive: legal, banking and advertising fees.
• Loss of control: the founders' share is diluted and anyone can buy shares, so the company can be taken over if someone buys enough of them.
• Short-termism: pressure from investors for rising profits and dividends every year may discourage long-term investment.
• More regulation and public scrutiny: detailed accounts, rules on disclosure, annual general meetings.
• Divorce of ownership and control: shareholders own the business but directors run it, and their aims may differ.

Worked example

A family-owned Ltd with 30 shops is considering flotation to fund 100 new shops. Give one argument for and one against.

1. For: the share issue could raise far more capital than family savings or bank loans, with no interest or repayments.
2. Against: the family's share of ownership falls, and once shares trade publicly another firm could build a stake and take over; there will also be pressure for short-term profit.

Answer: Flotation funds rapid growth but at the cost of control and greater scrutiny.

Check yourself

1. The key difference between a plc and a private limited company is that a plc
   • has unlimited liability
   • can offer its shares to the general public
   • is owned by the government
   • does not need to publish accounts
   Show answer

   can offer its shares to the general public. Public share sales define a plc.

2. A flotation is
   • a loan from a bank secured on property
   • the merger of two private companies
   • a temporary overdraft
   • the first sale of a company's shares to the public on a stock exchange
   Show answer

   the first sale of a company's shares to the public on a stock exchange. Also called an initial public offering.

3. Why does becoming a plc increase the risk of a takeover?
   • plcs have unlimited liability
   • Anyone can buy its shares, so a rival could build a controlling stake
   • plcs cannot refuse government orders
   • plcs must sell assets each year
   Show answer

   Anyone can buy its shares, so a rival could build a controlling stake. Shares trade freely on the stock exchange.

4. Short-termism in a plc means
   • borrowing only short-term loans
   • paying suppliers early
   • focusing on this year's profits and dividends at the expense of long-term investment
   • keeping inventory low
   Show answer

   focusing on this year's profits and dividends at the expense of long-term investment. Shareholders' pressure for quick results may cut spending on research or training.

5. The 'divorce of ownership and control' refers to
   • shareholders owning the company while directors manage it
   • partners splitting up
   • selling a subsidiary
   • the government regulating prices
   Show answer

   shareholders owning the company while directors manage it. Owners and managers are different people, so aims may conflict.

6. A founder owns 600,000 of a company's 1,000,000 shares. At flotation the company issues 500,000 new shares to the public. Calculate the founder's new percentage of ownership.
   Show answer

   40 %. 600,000 / 1,500,000 = 40%: the founder loses majority control.

7. State two reasons why a company might float on a stock exchange.
   Show answer

   To raise large amounts of capital for expansion, and to let the original owners or investors sell shares and turn their stake into cash; it also raises the company's profile.. Raising capital, and letting existing owners cash in or raising profile.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification (2018)

Last updated 8 November 2026. Spotted a mistake? Tell us.