(a) State any four sources of capital for a public limited company.
(b) Explain any four advantages and disadvantages respectively of converting a business into a public limited company.
Explanation
(a) Sources of Capital for a public limited company are:
(i) Sale of shares to the public.
(ii) Bank loan and overdrafts.
(iii) Debentures.
(iv) Equipment leasing.
(v) Ploughing back of profit.
(vi) Hire purchases.
(vii) Bill of Exchange.
(b) Advantages of a public limited company are:
(i) The business will become a legal entity: It can sue and be sued as a corporate body.
(ii) The company enjoys limited liability: The shareholder’s liability is limited to the number of shares held, or agreed to purchase.
(iii) The public limited company has the ability to raise large capital by offering shares of various types to the public.
(iv) The public limited company has a continuous existence independent of its members. The death of even the largest shareholders does not affect its existence.
(v) The public limited company operates on a large scale and therefore enjoys the economies of large scale.
(vi) It can easily raise loans e.g debentures.
(vii) It has enough capital to engage specialists.
Disadvantages of converting a business into a public limited company are:
(I) The law requires several formalities to be performed before a limited liability company is created. These formalities cost quite a lot of money.
(ii) It is slower to make decisions in a limited company than in the case of a sole trading business. This is simply because more people are involved in decision-making processes.
(iii) The management of the company are not the actual owners of the business.
(iv) There is very little privacy in its affairs as it is required to publish its account to the public.
(v) Unlike the case of the partnership, owners of a limited company do not have a personal touch with their business.