Top 36 Best Disadvantages of Public Limited Company

A public limited company is one of the most preferred business structures among large enterprises that require large capital to start and succeed. PLCs are usually allowed to issue shares to the public through a stock exchange, allowing them to raise significant amounts of capital. 

While such a structure has many advantages, it also has several challenges and disadvantages that business owners should seriously weigh before deciding to go public.

In this comprehensive blog post, we will discuss the main top 36 disadvantages of public limited company, including regulatory and financial burdens and the risk of public scrutiny, loss of control, and more. 

These are some of the major drawbacks a business should know while deciding whether or not to adopt a PLC structure.

What is the Public Limited Company?

A publicly limited company is a type of company that issues its shares to the public through a stock market, where anyone can buy or sell such shares. 

Being a separate legal entity, it is not individually and collectively liable for debts in excess of the company’s shares it owns. A PLC is likely to be a larger enterprise with more liquidity as it has the ability to raise cash by selling shares to the public.

If you want to know more about the what is the public limited company then you can click the below video

What are the Top 36 Disadvantages of Public Limited Companies?

We have brought to you all the top 35 disadvantages of public limited company, all the names are mentioned very well and all the disadvantages are explained individually:

1. Limited liability
2. Minimum shareholders and directors
3. Shareholder liquidity
4. Company name
5. Increased disclosure requirements
6. Loss of control
7. More complex accounting requirements
8. More regulation
9. Takeovers
10. Transferability of shares
11. Transparency
12. High Regulatory Requirements
13. Lack of Privacy
14. Cost of Going Public
15. Ongoing Reporting Obligations
16. Loss of Control
17. Vulnerability to Takeovers
18. Pressure to Perform
19. Shareholder Expectations
20. Dilution of Ownership
21. Stock Market Volatility
22. High Administrative Costs
23. Short-Term Focus
24. Increased Legal Risks
25. Difficulty in Making Rapid Decisions
26. Impact on Share Price
27. Complex Taxation
28. Managing Investor Relations
29. Hostile Shareholder Activism
30. Inflexibility in Corporate Structure
31. Increased Scrutiny from Regulators
32. Executive Accountability
33. Difficulty in Retaining Talent
34. Restrictions on Insider Trading
35. Excessive Bureaucracy
36. Higher Risk of Fraud

Limited Liability

Although the presence of limited liability is an advantage to the shareholders are not liable for the liabilities of the company may, as a corollary, be bad for creditors and lenders. In such a situation, they may not be willing to throw favorable terms at the company because if the company fails, their money will not be recovered wholly.

Limited Liability is the 1st disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Minimum Shareholders and Directors

Public limited companies also require a minimum number of shareholders and directors to operate. Finding suitable directors and ensuring you have the minimum amount required by law is very time-consuming and quite laborious. Furthermore, while directors face more scrutiny than ordinary members, they also bear a much greater burden in terms of legal compliance.

Minimum Shareholders and Directors is the 2nd disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Shareholder Liquidity

Although shares in a PLC are freely transferable; this is why companies find it easier to raise much-needed capital, the liquidity also means that ownership can change hands quickly. Shareholders can sell their shares at any time, causing fluctuations in stock prices. This makes it difficult for the company to plan as it needs to keep up with the constantly changing base of its shareholders.

Shareholder Liquidity is the 3rd disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Company Name

The name of a PLC must include the words “public limited company”, which will usually alert the market to the fact that the company is listed on a stock exchange. However, this can have an adverse effect in that it can make the company more exposed to competition, litigation, and even scrutiny from regulatory bodies.

Company Name is the 4th disadvantage among the Top 36 Disadvantages ofpublic limited company and also a very important one.

Increased Disclosure Requirements

Public limited companies disclose far more information than private companies. Such disclosures will include details of financial statements, executive compensation package information, shareholder information, and other types of business data. The more that is disclosed, the less profit there may be as competitors gain access to key company information, which harms competitive strategies.

Increased Disclosure Requirements are the 5th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Loss of Control

In many cases, the original owners lose considerable control through the sale of shares to the public. Any major business decision—mergers, leadership changes, or financial strategies—must obtain shareholder approval. This puts management at some disadvantage in acting independently and carrying out its vision for the organization.

Loss of Control is the 6th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

More Complex Accounting Requirements

PLCS require more accounting and financial reporting than private corporations. They have more demanding accounting burdens and must be audited periodically, which increases overhead administrative costs while leaving less time to focus on core business activities.

More Complex Accounting Requirements are the 7th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

More Regulation

Public limited companies have to comply with regulations made by stock exchanges and various government agencies, such as SEBI in India. This may include trading regulation, financial reporting requirements, and corporate governance requirements. Non-compliance with these regulations can result in severe penalties and legal action, which adds to the overall cost of running a business.

More Regulations are the 8th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Takeovers

A major threat to PLCs is the risk of a hostile takeover. Since shares are issued in a publicly traded company, competitors or other entities may purchase enough shares to enable them to take control of the company. This leads to changes in corporate strategies and leadership that are usually not welcome by the current management or owners.

Takeovers are the 9th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Transferability of Shares

This share transferability within a public limited company is convenient, but at the same time, it suggests that ownership changes frequently, leading to volatile markets for shares, unstable company ownership, and even an inability to make long-term plans as major shareholders can change at any time.

Transferability of Shares are 10th disadvantage among the Top 36 Disadvantages of public limited company and is also a very important one.

Transparency

While transparency builds trust with investors through openness to financial and operational data, it exposes the company to risk. Competitors, regulators, and even media houses may scrutinize the way the company carries out its activities. This can harm the company’s reputation, if the company has poor performance or is not managed properly. In addition, increased risk also increases the risk of regulatory scrutiny and shareholder activism.

Transparency is the 11th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

High Regulatory Requirements

The public limited company has to adhere to many rules, which include financial reporting, and rules of corporate governance. This calls for hiring lawyers and compliance experts to ensure that the firms’ activities are compliant hence adding additional costs to the operations. Additionally, non-compliance may attract significant penalties and loss of reputation.

High Regulatory Requirements are the 12th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Lack of Privacy

PLCs should also give elaborate balance sheets containing profits and losses and executive compensation. To benefit owners, this kind of transparency is essential; however, it has very inconvenient effects on the same information provided to competitors, customers, and the public at large and, therefore undermines strategic advantages.

Lack of Privacy is the 13th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Cost of Going Public

The start-up costs of a public limited company include a large portion of expenditures as regards legal charges, underwriting costs, and many expenditures on marketing and complying with the regulations of the stock exchange. All these are recurring expenses that can reduce the profits one earns at the early stages of business.

The cost of Going Public is the 14th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Ongoing Reporting Obligations

Once registered, companies must present their quarterly and annual reports to the regulatory bodies and shareholders. This requires having a massive team for compliance and accounting, which is costly and an important burden to the smaller PLCs trying to handle their costs of operations.

Ongoing Reporting Obligations are the 15th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Loss of Control

Original owners and management would tend to lose key control over final decisions when selling shares to the public. Key decisions, which would depend on a merger or change in management, require approval by shareholders, which can slow strategic initiatives.

Loss of Control is the 16th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Vulnerability to Takeovers

Since PLC shares are publicly traded, there is a potential for a hostile takeover. A hostile takeover may be occasioned by one party buying a significant number of shares; thereby gaining control of the company and its operations sometimes over the head of existing management.

Vulnerability to Takeovers is the 17th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Pressure to Perform

The PLC always faces pressure from the shareholders and analysts that it has the ability to deliver consistent profit and to make growth. Such pressure may make management concentrate more on short-term performance and put aside long-term targets by risking the future sustainability of a company.

Pressure to Perform is the 18th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Shareholder Expectations

Shareholders typically demand consistent dividends and rising stocks. In order to meet such expectations, companies are forced either to cut back on costs, to invest less in the area of research, or even to compromise on quality – all of which might, in the longer term, counteract growth.

Shareholder Expectations are the 19th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Dilution of Ownership

When companies issue new shares to raise capital, they may potentially dilute the ownership of original shareholders, including founders and early investors. Ownership dilution results in diminishing their control and influence on the major decisions as well as the interests that come into conflict.

Dilution of Ownership is the 20th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Stock Market Volatility

The pluses and minuses of PLCs are left at the mercy of the stock markets, which could change with market conditions, direction in investors’ sentiment, and economic determinants. Shares can drop even when the companies are doing very well to the detriment of some shareholders, who start panicking unnecessarily.

Stock Market Volatility is the 21st disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

High Administrative Costs

Apart from the cost of going public, there are ongoing administrative costs that include compliance and reporting, investor relations, and maintaining transparency for a public company. These costs eat up a significant portion of profits, especially for smaller firms.

High Administrative Costs are the 22nd disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Short-Term Focus

The pressure on regular financial performance reports has forced management to focus on short-term profits and ignore long-term projects like research and development or infrastructure investments for short-term profitability.

Short-Term Focus is the 23rd disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Increased Legal Risks

Public companies are at risk of litigation: shareholder class actions, employee lawsuits, and even regulatory investigations. Litigation can be costly and time-consuming and keeps top management engaged in issues that have nothing to do with growth.

Increased Legal Risks is the 24th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Difficulty in Making Rapid Decisions

A public company is slow and laborious in making decisions primarily because it seeks board approval and shareholder votes in addition to regulatory criteria. This can delay every important decision in fast-moving industries, and because of this, it will put the company at a competitive disadvantage.

Difficulty in Making Rapid Decisions is the 25th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Impact on Share Price

News, gossip, or market rumors can cause fluctuations in a company’s stock price, even if its financial position is good. Bad press or rumors about poor performance can naturally lead to fluctuations in the stock price and change investor confidence.

Impact on Share Price is the 26th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Complex Taxation

Public companies typically have higher corporate tax rates and more reporting requirements. For many companies, tax compliance will become a full-time job, increasing the cost of operations.

Complex Taxation is the 27th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Managing Investor Relations

A large portion of a public corporation’s time and resources must be devoted to conducting investor relations. Annual general meetings, preparation of investor reports, and shareholder question time are examples of activities that can divert management’s attention from its core business role.

Managing Investor Relations is the 28th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Hostile Shareholder Activism

Large institutional shareholders or activist investors may push their agenda, which may steer a company’s strategy in ways that are not desired by management. This is usually contradictory and harms long-term planning.

Hostile Shareholder Activism is the 29th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Inflexibility in Corporate Structure

Once publicly traded, restructuring the firm becomes even more difficult, as it requires shareholders’ approval. This often deprives the business of the opportunity to undertake a turnaround effort by the company, reorganizing divisions and substantially flattening organizational structures.

Inflexibility in Corporate Structure is the 30th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Increased Scrutiny from Regulators

Public companies are subjected to greater scrutiny by regulatory authorities such as SEBI (Securities and Exchange Board of India), stock exchanges, and government agencies. A minor non-compliance can lead to major penalties in the form of fines, investigations, or restrictions in the form of trading.

Increased Scrutiny from Regulators is the 31st disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Executive Accountability

The management group of a public limited company is accountable to its shareholders. If shareholders are not satisfied with performance, they may demand a change in leadership, which can increase volatility and affect business continuity.

Executive Accountability is the 32nd disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Difficulty in Retaining Talent

Stock-gated option holders may have less motivation to stay because stock price volatility makes them less appealing and may also have morale problems because the value of compensation decreases when the company’s stock is not performing well.

Difficulty in Retaining Talent is the 33rd disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Restrictions on Insider Trading

Executives and employees of public companies are restricted from trading the company’s shares to prevent insider trading. For this reason, insider requirements can sometimes make insiders unable to sell shares, even during severe times of personal financial stress.

Restrictions on Insider Trading is the 34th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Excessive Bureaucracy

Excessive shareholders, board members, and regulatory approvals create unnecessary bureaucracy in a public company. Such bureaucracy can slow innovation and decision-making as well as reduce companies’ agility.

Excessive Bureaucracy is the 35th disadvantage among the Top 36 Disadvantages of public limited company and also a very important one.

Higher Risk of Fraud

With the constant pressure from shareholders, public companies are more vulnerable to financial fraud and accounting scandals. Practices to show better profits or increase the price of shares may become fraudulent, resulting in legal implications.

Higher Risk of Fraud is the 36th disadvantage among Top 36 Disadvantages of public limited company and also a very important one.

If you want to know more about the disadvantages of public limited company then you can click the below video

What are the Features of a Public Limited Company?

Here are the key features of a Public Limited Company (PLC):

• Limited Liability: The liability of its shareholders is limited to their investment.
• Separate Legal Entity: It has a legal identity of its own which is separate from the owners.
• Transferable Shares: Shareholders can freely buy and sell shares in the stock market
• Minimum Capital Requirement: A minimum amount of capital is required to form a company
• Public Share Subscription: The company can raise capital by resolving the issue of shares among the public
• Stock Exchange Listing: PLCs can list their shares on stock exchanges.
• Board of Directors: The company is headed by a board elected by the shareholders.
• Regulation and Compliance: It is strictly regulated and is bound to provide reports under the relevant Acts.
• Perpetual Succession: The existence of the company continues no matter who owns it.
• Increased Credibility: Public listing helps in developing more trust among investors as well as customers.

What are the 10 Advantages of a Public Limited Company?

If you want to know more about the Advantages of a Public Limited Company then you can get a complete guide to this by just clicking here.

In Conclusion

While public limited companies offer significant advantages, such as access to capital and increased visibility, they also come with a range of disadvantages that can complicate operations and decision-making. From regulatory compliance and high costs to the risk of hostile takeovers and public scrutiny, the challenges of running a PLC require careful consideration.

For businesses weighing the pros and cons of going public, it is essential to assess whether the potential rewards outweigh the risks. In some cases, remaining a private companyy or choosing an alternative business structure may be a more viable option for achieving long-term success.

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