At times, it can be difficult deciding on what business structure will suit your needs. In this article we will be tackling the advantages and disadvantages of creating a public company structure.
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What is a Public Company?
A public company, commonly known as a public limited company or PLC, is a company that trades its stocks and shares on the public exchange market. Thus, a public company receives the “public” portion of its name because portions of the company are sold to the public, via the exchange market. Some extremely successful public companies include, Goggle, Apple, Tesla etc. Now, before we go any further, it must be noted that there are a few different types of public companies. These include:
- Public companies limited by shares,
- Public companies limited by guarantee,
- Unlimited public companies with a share capital,
- No liability companies.
Public companies can also be listed and unlisted. A listed public company will be able to offer their shares on the ASX (Australian Securities Exchange), encouraging larger stock trading activity. However, an unlisted company is unable to trade on the ASX, but they can still acquire shareholders via private investors, family, friends, etc.
This article will focus on the general nature of public companies, with a particular focus on companies limited by shares, as this is one of the most popular types of public company structures.
Advantages of Public Companies
Ability to Raise Capital
Being that a public company is open to investment, it is quite easy to raise capital. This is one of the most attractive benefits of structuring your business as a public company. Thus, this type of company is able to raise capital by issuing public shares. As public companies list their stocks on a recognised public exchange, members of the public and big time investors are able to buy the public companies stock/shares and become equity owners. These equity owners are in turn, called shareholders.
Now, public companies generally enjoy the fact that they can have an unlimited amount of shareholders. Therefore, their potential capital raising capacity is virtually endless. Thus, acquiring a good amount of shareholders will allow your company in engage in capital-intensive activities it may not have been able to do without the investment from shareholders, so this is a great potential benefit.
Company Growth
Being that your company is able to raise capital by selling stocks on a public exchange, the possibilities for company growth are truely unlimited.
The major advantages include the ability to:
- Undertake new projects, new research and new company developments,
- Engaging in acquisitions,
- Minimise the risk of debts resulting insolvency.
The growth of any company is truely in the hands of its directors or owners. Therefore, even though natural and organic company growth is a great advantage of a public company, it is really up to business owners/directors to foster their companies development.
Disadvantages of a Public Companies
High level of Regulation
There is a high level of regulation and compliance that comes with public companies. The main reason is that potential investors and the general public need protection. As public companies are able to raise capital through their shareholders, there are a range of mandatory disclosure requirements.
This includes the requirement that public companies must provide for a disclosure document, or prospectus, to all potential investors. Accordingly, a prospectus will outline the company’s financial risks, profits, losses, assets, liabilities and business model. This ensures that all potential investors are making well-informed decisions before buying shares in your business. Other forms of regulation that come along with forming a public company include:
- Formation of a Company Constitution, or the use of the Replaceable Rules provided for in the Corporations Act 2001 (Cth),
- Must hold Annual General Meetings (AGMs),
- Must maintain the Share Register,
- Required to deliver all financial reports, including director’s reports, to all company shareholders.
If you are considering registering a public company, we can make your registration process simple and effective, ensuring all legal compliances are being met.
High Level of Reporting
ASIC states that all public company’s must prepare both a director’s report and a financial report in accordance with the rules set out in the Corporations Act. Also, these reports must be audited in according with ASIC requirements. Now, these reports are time consuming and can be costly to produce. However, the consequences for failing to produce your company reports in a timely manner is much more costly.
Key Takeaways
There are a range of benefits and disadvantages to owning or director a public company. The major benefits are growth due to the raising of capital through shares and stock. However, with great investment comes great regulation. Public companies are under strict rules and regulations by ASIC and the Corporations Act.
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