Nature of public limited companies

The advantages of incorporating a public limited company in Hong Kong

The advantages of a public limited company are as follow:

  • The business could raise additional sources of finance to expand the business through selling shares to the public
  • The shareholders have a limited liability
  • Increased negotiations with the suppliers for better pricing since larger businesses can achieve economies of scale.

Raising capital through public issues of shares

  • One of the most obvious advantages of a public limited company is the fact that it can raise capital by selling its shares to the public. Since the shares are readily available to anyone willing to buy, the public limited company will have a better chance to raise more capital to reinvest and expand the business. Thus, a public limited company will have more capital to conduct its activities.

Widening the shareholder base and spreading risks

  • Since a public limited company allows for selling its shares to the public, it, therefore, spread the risks over a relatively larger number of shareholders. Besides, the initial owners of the business can sell their personal shares at a profit while still retaining a significantly larger portion of the business.
  • Obtaining capital from a larger number of ‘investors’ will be more efficient than the case of the private limited company that can only receive capital from one or two angel investors who might want to have a larger influence in the way the company is operated.

Other finance opportunities

  • A public limited company will often be advantageous when they are seeking additional sources of finance.
  • Since a public limited company is expected to, for example, maintain the exchange listing in stock, it can thus help in the improvement of the company’s creditworthiness thereby increasing its chances to qualify for a corporate loan. Besides, public limited companies are in a better position to negotiate for favorable interest rates and loan repayments terms.

Growth and Expansion opportunities

  • A public limited company is better placed than other business entities where there is a need for business expansion. The fact that it can extend its shares to the public, it can thus obtain more money that is needed to expand their operations. It can thus be able to:
    • Grow organically
    • Fund research and development
    • Settle its debts
    • Start new projects and expand through the setting up of other branches
    • Prestigious profile and confidence

Having a public limited company is one of the ways that a company can increase its confidence. Since it’s in the public domain that the public limited company is well established, larger, and more powerful, it, therefore, can influence the behavior of employees, consumers, and suppliers.

It is one of the ways that a company can market itself especially if it’s listed in the stock market.

Some of how a company’s credibility can be reinforced include:

  • Operating under a strict legal regime compared to the private limited company
  • The share capital required is relatively higher
  • It has a greater transparency
  • Transferability of shares
  • The public limited companies are more easy to transfer as compared to those which are in private limited companies. In as much as the market operates under the willing buyer willing seller, shareholders are less bound to remain with the company and the transfer process is relatively easier as long as the shares are quoted on the stock exchange.
  • Easier market exit
    • A public limited company can enhance options for founders to exit the business in the future if they no longer need to continue with the business. The higher transferability rate and visibility of its performance increase the chances of potential suitors to bid their interests in the business.

FinReg business tip

Public limited companies have their shares available for sale to the public. This allows several advantages such as risk diversification, ease of raising capital and growth and expansion opportunities. However, this also means a significant increase in scrutiny that the company will have to comply with, primarily to protect shareholders.