Page 51 - Cambridge IGCSE Business Studies

4: Types of business organisation

Private limited company Public limited company
TOP TIP Owners Usually a very small number of Usually a very large number of

Do not confuse public limited shareholders. Often members of shareholders.
companies with public sector the same family or friends.
organisations. Public limited
Size Usually fairly small. Most common form of
companies are in the private
organisation for very large
sector.
companies.

Sale of shares by Can only be sold privately, oft en Can be offered for sale to
the company to family members, friends or the general public and other
employees. organisations.
Sale of shares by Oft en difficult to sell as Quick and easy to sell as they

shareholders must be sold privately and can be offered for sale to the

with the agreement of other public.
shareholders.
Control Only a few shareholders. One Often thousands of

shareholder may own 51% of the shareholders. The Board
shares in the company and so of Directors appointed by
has control over major decisions. shareholders at the Annual
Ownership is not separated from General Meeting control major
control. decisions.
Ownership and control are
separated.
Raising Even if successful it may be If successful then can oft en

additional difficult to raise additional raise very large sums quite
capital through capital as shares cannot be sold easily through the sale of 49
share issue to the general public. additional shares.

Borrowing Often find it difficult to raise Can often raise very large

finance finance as unincorporated sums at good rates of interest
KEY TERM businesses because they are because of their reputation
usually small businesses with low and valuable collateral.
Collateral: non-current assets value assets to offer as security –

offered as security against known as collateral.
borrowing.

Table 4.1 The main differences between private and public limited companies
Public limited companies also have disadvantages which are not shared by private
limited companies. Th ese include:
TOP TIP
Make sure you understand the ■ The legal formalities of setting up a public limited company are very costly.
difference between unlimited

and limited liability, and what ■ Directors’ decision-making is sometimes influenced by major investors who
that means for the owners of a seek to satisfy their own objectives. For example, major investors might
business. demand the directors pay higher dividends than they had planned. This
reduces the profit available for reinvestment into the company.
■ The company is always at risk of a takeover by another company, because its
shares can be freely bought and sold. Any other business needs only to buy 51%
of the shares in a company to become the new owner.
■ The legal requirements for the publication of information about the company is
much stricter than it is for private limited companies.