PUBLIC COMPANY
SENATHON IPIA
Definition of Public Company
A public company is a business owned by a minimum of 7 shareholders but NO maximum number of shareholders and is a separate legal entity.
That is, a public company would have a minimum of 7 shareholders but NO maximum limit.
A public company has its name ending with the words “Public Limited Company”, usually written with the acronym “plc”.
Note: In finance, the term “liquid” means cash. So, liquidation means turning other assets to cash, by selling the assets.
(v) Ability to transfer ownership of shares. Shareholders can sell part or all of their shares to another shareholder in a public company.
Note: If you sell all your shares in a company, you cease to be a shareholder. So, if you do NOT want to continue as an owner of a public company, you can sell all your shares (i.e. sell all your investment in the company). This is termed as divestment in the company.
Definition of Public Company
A public company is a business owned by a minimum of 7 shareholders but NO maximum number of shareholders and is a separate legal entity.
That is, a public company would have a minimum of 7 shareholders but NO maximum limit.
A public company has its name ending with the words “Public Limited Company”, usually written with the acronym “plc”.
Note: In full, it would be referred to as: public limited liability company. However, it is usually reduced to the words “public limited company”, and the acronym is “plc” is often used.
An example of a public company would be: Senaipia Plc.
What makes a company a public company is that it sells its shares to the members of the public.
Features/Characteristics of a Public Limited Company
(i) Must have a minimum of 7 shareholders but NO maximum limit.
(ii) Separate legal entity from its owners.
(iii) Limited Liability: The liability of the shareholders (owners) is limited to the amount contributed as share capital, or unpaid amount for the company’s shares already subscribed to.
(iv) Perpetual existence: The death of its owners does NOT stop its continuity. The business continues to exist so long as it keeps making profits and there is no new law that stops its continuous existence.
(v) Sale of its shares to the any member of the public: Any of its shareholders can sell all or part of the shares he/she/it owns to any member of the public. This is otherwise termed share transfer.
OR
The shares of a public company are transferable, or there is transfer of shares with a public company.
The shares of the company are quoted in the stock exchange. It is at the stock exchange that share transfer takes place.
(vi) Separation of its ownership from its management and control: The directors control the business. They appoint employees, whom they direct on how to manage the business. The managers who run the business are employees; they may not be shareholders.
(vii) Certificate of trading must be issued before a public company can start carrying on the business for which it was established. That is, in addition to certificate of incorporation, a public company is also issued certificate of trading.
(viii) Publishing of its financial statements: The law also requires a public company to publish its financial statements.
An example of a public company would be: Senaipia Plc.
What makes a company a public company is that it sells its shares to the members of the public.
Features/Characteristics of a Public Limited Company
(i) Must have a minimum of 7 shareholders but NO maximum limit.
(ii) Separate legal entity from its owners.
(iii) Limited Liability: The liability of the shareholders (owners) is limited to the amount contributed as share capital, or unpaid amount for the company’s shares already subscribed to.
(iv) Perpetual existence: The death of its owners does NOT stop its continuity. The business continues to exist so long as it keeps making profits and there is no new law that stops its continuous existence.
(v) Sale of its shares to the any member of the public: Any of its shareholders can sell all or part of the shares he/she/it owns to any member of the public. This is otherwise termed share transfer.
OR
The shares of a public company are transferable, or there is transfer of shares with a public company.
The shares of the company are quoted in the stock exchange. It is at the stock exchange that share transfer takes place.
(vi) Separation of its ownership from its management and control: The directors control the business. They appoint employees, whom they direct on how to manage the business. The managers who run the business are employees; they may not be shareholders.
(vii) Certificate of trading must be issued before a public company can start carrying on the business for which it was established. That is, in addition to certificate of incorporation, a public company is also issued certificate of trading.
(viii) Publishing of its financial statements: The law also requires a public company to publish its financial statements.
Sources of Capital or Finance of Public Limited Company
The money used to start and run a public limited company (plc) comes from the following sources:
(i). Shares – ordinary shares or preference shares or both. This is capital raised from issuing shares. The money raised is known as share capital – the money comes from the shareholders – the owners of the company.
(ii) Debentures or corporate bond: This is debt capital raised from long-term borrowing.
(iii) Commercial bill: Also called commercial paper, it is debt capital raised from short-term borrowing.
(iv) Bank loan: This is borrowing from bank, and could be on short-term, medium-term, or long-term loan.
(v) Bank Overdraft: If a company obtains an overdraft, then it got more money through its current account than what is in its current account with a commercial bank. It is also a debt capital.
(vi) Trade credit: This is refers to buying goods on credit from suppliers. It is a form of financing, and of course, capital.
(vii) Discounting bill of exchange: A bill of exchange in favour of a company can be discounted with a bank, and money (capital) generated.
Note: Bill of exchange is a debt instrument (i.e. debt document) raised as evidence of debt owed by a trade debtor to trade creditor. (In this case, the trade creditor is the company – the beneficiary).
Before the date the debt is due for payment (i.e. before the due date), the bill of exchange can be presented to a bank by the company (the trade creditor), and a less than the stated amount of the debt is collected from the bank. This is known as discounting. (Remember, discount means less than the original value).
The money used to start and run a public limited company (plc) comes from the following sources:
(i). Shares – ordinary shares or preference shares or both. This is capital raised from issuing shares. The money raised is known as share capital – the money comes from the shareholders – the owners of the company.
(ii) Debentures or corporate bond: This is debt capital raised from long-term borrowing.
(iii) Commercial bill: Also called commercial paper, it is debt capital raised from short-term borrowing.
(iv) Bank loan: This is borrowing from bank, and could be on short-term, medium-term, or long-term loan.
(v) Bank Overdraft: If a company obtains an overdraft, then it got more money through its current account than what is in its current account with a commercial bank. It is also a debt capital.
(vi) Trade credit: This is refers to buying goods on credit from suppliers. It is a form of financing, and of course, capital.
(vii) Discounting bill of exchange: A bill of exchange in favour of a company can be discounted with a bank, and money (capital) generated.
Note: Bill of exchange is a debt instrument (i.e. debt document) raised as evidence of debt owed by a trade debtor to trade creditor. (In this case, the trade creditor is the company – the beneficiary).
Before the date the debt is due for payment (i.e. before the due date), the bill of exchange can be presented to a bank by the company (the trade creditor), and a less than the stated amount of the debt is collected from the bank. This is known as discounting. (Remember, discount means less than the original value).
On the due date, the bank will collect the full amount from the trade debtor.
To the bank, here's the business essence: the bank gains by paying a discounted amount to the trade creditor and collecting full amount from the trade debtor. For example, a bank discounted a bill of exchange of ₦500,000 at ₦440,000 to a trade creditor, and collected the full ₦500,000 from the trade debtor, gaining ₦60,000. It is because the bank will gain that is why it accepted to discount the bill of the exchange. Discounting bill of exchange is buying a debt.
(viii) Retained profits: These are profits (i.e. money) not distributed to shareholders. The retained profits are ploughed-back as capital. That is, put back as capital.
(ix) Hire purchase: A public company finance it asset purchase using hire purchase credit financing.
Reasons for Incorporating a Public Limited Company
The reasons for incorporating a business as a public company are:
(i) Ability to raise more capital than sole proprietorship, partnership and private company. Pooling together money capital from unlimited number of shareholders means that so much money capital can be raised by a public company.
(ii) Limited liability for the owners (shareholders). If the company goes bankrupt, the owners only lose the money they have invested or have agreed to invest as equity capital in the business.
(viii) Retained profits: These are profits (i.e. money) not distributed to shareholders. The retained profits are ploughed-back as capital. That is, put back as capital.
(ix) Hire purchase: A public company finance it asset purchase using hire purchase credit financing.
Reasons for Incorporating a Public Limited Company
The reasons for incorporating a business as a public company are:
(i) Ability to raise more capital than sole proprietorship, partnership and private company. Pooling together money capital from unlimited number of shareholders means that so much money capital can be raised by a public company.
(ii) Limited liability for the owners (shareholders). If the company goes bankrupt, the owners only lose the money they have invested or have agreed to invest as equity capital in the business.
Limited liability is necessary here, because, if as one of the owners of the business, you do NOT join in its control or management, why would you be called to contribute additional money to pay for the debt of the company?
(iii) Separate legal entity from its owners. The business is different from its owners – it is an artificial person – it can sue and be sued in its own name.
(iii) Separate legal entity from its owners. The business is different from its owners – it is an artificial person – it can sue and be sued in its own name.
(iv) Perpetual existence. The death of a shareholder does NOT mean the end of the business.
The business (company) continues to exist so long as:
- there is NO new law that stops its existence; and it continues to make profit – has NOT become bankrupt, resulting in its liquidation.
The business (company) continues to exist so long as:
- there is NO new law that stops its existence; and it continues to make profit – has NOT become bankrupt, resulting in its liquidation.
Note: In finance, the term “liquid” means cash. So, liquidation means turning other assets to cash, by selling the assets.
(v) Ability to transfer ownership of shares. Shareholders can sell part or all of their shares to another shareholder in a public company.
Note: If you sell all your shares in a company, you cease to be a shareholder. So, if you do NOT want to continue as an owner of a public company, you can sell all your shares (i.e. sell all your investment in the company). This is termed as divestment in the company.
Differences between of a Public Company and a Private Company
The differences between a public company and private company are:
Public Company | Private Company |
Has a minimum of 7 shareholders | Has a minimum of 2 shareholders |
Has NO maximum limit of shareholders | Has a maximum of 50 shareholders |
Its shares are issued to the members of the public OR It can raise capital as shares from members of the public | Its shares are NOT issued to the members of the public OR It CANNOT raise capital as shares from members of the public |
Its shares are transferable. That is, its shareholders can sell their to any member of the public | Its shares are NOT transferable. That is, its shareholders can sell their to members of the public |
Requires certificate of trading before it can commence full business operation | Does NOT require certificate of trading for it to commence business operation |
It shares are quoted in the stock exchange because it is transferable | It shares are NOT quoted in the stock exchange because it is NOT transferable |
Its financial statements (accounts) are published | Its financial statements (accounts) are NOT published |
THANK YOU
For more, send e-mail to: senaipia@gmail.com, or call: +234 (0) 7052802574
Senathon Ipia is a Chartered Accountant with the Institute of Chartered Accountants of Nigeria (ICAN).
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