Public limited company and stock market flotation

A public limited company (plc) is a legal status that allows a company to offer its shares to the general public. Anyone can buy a stake, so a plc is owned by its shareholders — the people and organisations that hold its shares. Those shares can be bought and sold on a stock exchange, a market where the shares of plcs are traded. "Public" here means the shares are open to the public to buy; it does not mean the government owns the business, and floating does not mean selling off stock or equipment. Floating also does not give a business limited liability for the first time, because a private limited company already has that. The real change is who is allowed to buy the shares.

Raising share capital

A plc can issue new shares to raise share capital for growth, such as opening new sites, buying machinery or hiring staff. The money does not have to be repaid, but shareholders expect a return through dividends.

A stock market flotation is the process of offering a company's shares for sale to the public for the first time. It can raise a large amount of share capital in one go. For example, Kestrel Outdoors Ltd, a private limited company with 12 camping stores, needs £6 million to open 25 more. It floats — becoming Kestrel Outdoors plc — and sells 35% of its shares to the public, raising the money far more quickly than retained profit could.

What the owners give up

• Diluted control: the founders keep 65% of Kestrel's shares, so they still outvote everyone else, but 35% of the votes now belong to strangers. Selling a larger share could leave the original owners unable to outvote the rest.
• Pressure from shareholders: outside investors want dividends and a rising share price, so directors may feel pushed to chase short-term profit rather than long-term plans.
• Hostile takeover: because plc shares can be bought by any outside investor, a rival can buy enough shares to take control even when the current directors object.