Public limited company advantages and disadvantages

There are many advantages to becoming a public limited company (plc). They include access to capital, greater liquidity for shareholders, and various ways to incentivise employees with balanced compensation packages. But it’s important to remember that for some companies, the disadvantages may outweigh the advantages. 

In this article, we will cover some of the key elements that change when private companies transition to the public markets, discussing the main benefits of plc status for the business and its shareholders. We’ll also provide an overview of the new challenges that confront public companies, and ways senior leaders can plan ahead to mitigate any upheaval during this vital transition period. 

What is a public limited company (plc)?

A public limited company is a company whose shares are listed on a stock exchange, and can be bought and sold by retail and institutional investors. 

A plc will have a board of directors and often a CEO who oversees the day-to-day running of the company. The goal of the board and the CEO is to increase shareholder value or returns. Public companies can issue a percentage of their earnings per share as a dividend, and shareholders are usually granted voting rights at annual general meetings (AGMs) or other votes.

Advantages of a public limited company

Access to capital/liquidity

While private companies must raise money from private investors, shares in public companies are able to be bought and sold freely. Plcs can raise significant capital by issuing shares to the public, especially at IPO whereby the company issues new shares on the public markets for the first time. The cash injection at IPO (initial public offering) can provide companies with the funds they need for strategic initiatives such as expansion into new markets or for increased research and development activity. 

In contrast, the relative illiquidity of private companies means that raising capital is potentially more uncertain, with more agreements required between existing board members or shareholders and potential new investors. 

Employee incentives and other benefits

Plcs often implement an employee stock ownership plan (ESOP) and offer other equity-based incentives – such as LTIPs for senior executives – to hire and retain talented employees. Public companies can tailor equity-based incentives to match changing growth ambitions and talent strategy. For example, some attrition of early employees and existing shareholders might be expected, and the company may need to attract a different profile of new hire to account for increased reporting and compliance challenges post-IPO. 

To fit the new reality of life as a public company, plcs may choose to set up new share schemes such as share incentive plans (SIPs), Save as you Earn schemes and/or RSUs. Companies can make plans more flexible by customising vesting schedules, adjusting employee benchmarks, or adding market and non-market performance conditions reflecting revenue, profitability or share price targets.

Share plan management can be complicated. But it doesn’t have to be. Ledgy makes it easy for private and public companies to manage equity, freeing up capacity and remaining compliant. With all-in-one equity plan automation software, from early-stage setup to complex management and reporting, you can be confident when dealing with equity.

{{cta-1}}

Trust and reputation

Being listed on a stock exchange can enhance the company's credibility and image. During the IPO process and in economic booms, it is common for publicly listed businesses to benefit from increased interest and therefore it could reflect in the company's share price. It may be perceived as a more stable and reputable business to financial institutions and outside investors, enhancing the desire to invest.

Public limited companies are subject to heightened disclosure requirements and scrutiny from analysts. In many cases, publicly available quarterly reports are used as a measure of success and will be a key performance indicator for interested third parties. 

The additional scrutiny and regularity in reporting builds reputation and trust with retail investors. The pressures and hurdles that public companies face provide as a good litmus test for stability, credibility and potential for further success. 

Private limited companies commonly see PR efforts and significant boosts in awareness linked to funding rounds during their growth. 

Risks of becoming a public company

Costs of compliance

For public limited companies compliance takes up significant overhead. More resource is required to handle statutory legal and regulatory obligations, and quarterly reporting places additional burden on multiple departments. Of course the cost of errors or delays can be significant, if you are having your company accounts audited or teams are extracting data from multiple sources for annual accounts reconciliation, there could be human error given the significant administrative workloads. This can be automated or made easier by software for financial reporting freeing up time for your compliance teams and safeguarding against avoidable errors or missed deadlines.

Loss of control

With the sale of shares accessible to the public, the original owners of the plc could lose control over the company. In the rare case of a hostile takeover, an individual or entity could purchase enough shares (over 50%) with voting rights that were issued by the plc, therefore gaining majority control of the company.

Market scrutiny

Public companies are subject to intense scrutiny from analysts, the media, and the public. Revenue and profitability, as well as growth trajectory, will be regularly assessed and debated. When it comes to equity incentives, a much broader base of shareholders will be able to vote on resolutions relating to remuneration, which may shine a new spotlight on senior executives.  

Comparing public limited companies to alternative business structures 

We’ve prepared a comparison table to help you understand the key differences between these different structures at a glance. 

Should private companies go public?

The decision to go public is highly significant with many different factors to consider. Typically, a private company that has reached significant scale and attained a position of market leadership in a particular market or vertical might be considered sensible candidates to raise capital from the public markets. But there is no ‘right’ and ‘wrong’ approach, and every company is different.

Team members from around the company regard an IPO as a crucial milestone. And often, IPOs can create significant wealth for long-serving employees. So it’s critical for companies to design equity incentives that align all stakeholders as the company transitions from private to public. 

Ledgy helps make equity management simple and engaging for all teams involved in equity plan administration. Ledgy automates much of the repetitive manual processes that help companies to make equity more tangible for their teams. Meanwhile, a market-leading focus on compliance and risk management ensures that companies can prepare to take the next step with confidence.

Create automated equity workflows with Ledgy

Replace manual workflows with automation at every step of the granting process, improving data accuracy and reducing repetitive tasks. Managing data at scale is a breeze with Ledgy’s 50+ HRIS integrations to keep large volumes of data accurate, and with custom fields, you can sync exactly what you need in one click. 

You’ll never have to stress about an upcoming deadline with instantly generated share-based payments expensing compliant with IFRS 2, and accompanying disclosures and DTA reports. Configure reports based on your needs easily within Ledgy, the modern and easy-to-use platform.

{{cta-1}}