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Wednesday, January 19, 2011

Why might a private limited company be converted into a public limited company?

Ans. A private limited company is one in which shares are sold only to friends and family while the shares of a public limited company can be sold to the general public through the Stock Exchange.
This is the main reason for a private limited company to be converted into a public limited company or plc.
The issue of shares to the public can raise very large sums of capital (finance). This can prove very beneficial for the owners of a rapidly expanding private ltd. company who need finance in a short period of time. This means that alongwith having all the advantages of a private limited company, like limited liability and separate legal identity, a plc. also has a Stock Exchange listing.

So the business can not only sell shares to the general public but the flexibility of shares is an additional attraction to the shareholders. Due to this flexibility, the shareholders can quickly sell their shares (transferring of shares) if they wish to, which is not possible for the shareholders of a private limited company.
Then finally the owners of the private limited company who are converting to a plc. Also know that once their aims are fulfilled, they can convert back to a private limited company.
The additional capital is not only used for expansion but to increase efficiency by modernizing and buying new machinery. It could also be used to diversify by take-over and mergers or starting a different product type

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