Public Limited Company: Examples, Characteristics, Advantages, Disadvantages

What’s it: A public limited company is a business organization in which the legal entity is separate from the owners, has a limited liability, and is listed on the stock exchange. Generally, they are big companies. Also known as a listed company or public company.

Owners can be individuals, companies, or other organizations. Often, we refer to them as shareholders.

Public limited companies have great resources. They also have better access to larger capital such as by right issue or issuing debt securities such as bonds. Therefore, it allows them to collect funds to grow the business rapidly.

However, companies must comply with the strict regulations of stock market regulators. In addition, they must disclose some critical information to the public, such as financial statements, which competitors can use to make decisions about appropriate strategies against the company.

In addition, owners can easily lose control when they lose 50% of the shares. When a company needs additional capital and sells new shares, the old shareholder’s holdings can be diluted.

Then, agency conflicts can also arise. For example, directors may act not in the owners’ interests when conducting business but rather pursue their own interests and profits.

Public limited company examples

There are many examples you can find. You can visit the stock exchange website to see their list. In Indonesia, you can visit the Indonesian stock exchange website. Following are the Top 100 public companies in Indonesia by market capitalization:

Public limited company characteristics

Establishment and listing. Establishing a company is usually complicated and expensive because it requires more requirements and paperwork. In addition, they must publish several documents such as financial statements and prospectuses as required by the regulator in the stock market.

Legal entity. The company is registered as a formal legal entity and is recognized as a separate legal entity from its owners.

Capital. The company has the potential to raise large amounts of funds by selling shares or bonds.

Owner or shareholder. The company has at least two shareholders and no maximum limit. They can easily and freely transfer their ownership in the company. But, then, the original owner may lose control if he holds less than 50% of the shares. For example, when selling new shares, the interest in the shares by the old owners may be diluted.

Limited liability. Shareholders enjoy limited liability. For example, when a business defaults on a debt, it is not their personal responsibility to pay it off. And their wealth is not affected.

Compliance. Because of issuing shares on the stock exchange, companies are also bound by regulations in the stock market, including the obligation to publish financial reports and other reports. In addition, information about the company is also widely open to the public.

Management. The owners appoint directors to represent their interests in the company and carry out day-to-day operations. Therefore, the board of directors should be responsible and act in the best interest of the shareholders. But, conflicts of interest often arise where directors pursue their own personal interests rather than the owners’ interests.

Independence. Managers and directors have the space to work independently and prove their expertise in their area of specialization.

Continuity. The company continues to exist even though the shareholders or directors change. It differs from a partnership or sole proprietorship, where when the owner leaves or dies, the business may end.

Double tax. The business bears the corporate profit tax, whereas the owner pays the personal income tax. In contrast, the owner bears only personal income tax under a sole proprietorship and is not subject to corporate profits tax.

Public limited company advantages

Limited liability. The company’s assets and liabilities are separate from those owned by shareholders. It protects the owners’ personal wealth as they are not personally liable for the company’s debts. So, they don’t need to sell assets or property just to pay off company debt.

Separate legal entity. Because a business is a legal entity separate from its owners, lawsuits against companies do not lead to lawsuits against owners.

More significant capital. Companies could raise large amounts of funds from the capital market. In addition, because it has a legal entity, companies can also more easily obtain loans from banks or other financial institutions, unlike sole proprietorships. It all allows them to finance expansion more easily and scale up their operations.

Stable structure. The business continues to exist even though the shareholders relinquish their ownership of the company. Or, when the director leaves the company, it does not cause the company to cease operations.

Share ownership by employees and management. This business organization allows management and staff to own shares in the company through employee stock ownership plan (ESOP) and management stock ownership plan (ESOP) programs. Such programs allow them to be more loyal and responsible for the company’s performance.

Return. Apart from dividends, shareholders also get a return from capital gains, namely when selling company shares higher than the purchase price. Sales transactions are also easier than in a private limited company.

Public limited company disadvantages

Not necessarily a dividend. Companies may prefer to invest their earnings as capital (retained earnings) and use them to fund expansion, which will sustain their growth going forward. So, no money goes into the owner’s pocket.

Conflict of interest. Directors often act in their own interests and benefits, not the best interests of shareholders. That then raises the agency problem. For example, shareholders may want profits to be distributed as dividends, but directors do not.

Larger administrative costs. Set-up and compliance costs are more significant than partnerships or sole traders. That’s because the company’s operations are more complex than the two.

Vulnerable to speculation. The company’s stock price may fall suddenly due to speculative activity. Stock prices do not move following the company’s fundamentals. Then, falling prices can make it difficult to obtain large funds during the rights issue.

Complex decision-making. Decisions take time due to the large business size and the more complex operating structure.

Greater access to sensitive information. The public and competitors can access critical information such as financial and operational data, for example, through annual reports, because it is publicly available.

Separate ownership and control. The owner has no control over the operations of the business. It was because they are not involved in the day-to-day operations. In contrast, under a sole proprietorship, the owner has control over all decisions.

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