Definition: What Is a Private Limited Company?
Under the law, a private limited company (PLC) is viewed in much the same way that a corporation is.
They have limited liability, must hire auditors, must hold meetings, and all profits are evenly dispersed amongst all shareholders.
That being said, there are some major operational differences between a PLC and a corporation.
How Is a Private Limited Company Different From a Corporation?
A PLC is much smaller, with anywhere from 2 to 50 shareholders who are often family members.
Shareholders are not able to sell their shares unless it is agreed upon by the entire company. Additionally, shares must first be offered to other members of the PLC before they can be sold to outsiders.
This is the only time that shares may be available on a semi-public market, as a PLC does not sell its shares at the stock exchange.
What Are the Benefits of a PLC?
Unlike a larger corporation, shares are not available to the general public.
Hence, there is no danger of a hostile takeover or influence from those outside of the company.
Also, due to its minimal number of shareholders, a PLC is able to raise more capital; all profits stay within one “community” per se.
Of course, just as with corporations there is limited liability, so the individuals within the company are seen as separate entities from the company as a whole.
What Are the Drawbacks of a PLC?
The smaller size of a PLC and the inability to sell shares on the public market means that growth is hindered.
It is absolutely possible for a PLC to be incredibly successful, but they do not have the growth opportunity that larger corporations have.
Also, the initial establishment of a PLC may be difficult because of its size; legally, they have to meet certain requirements that larger corporations are more financially capable of meeting than private limited companies.
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