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Tuesday, January 18, 2011

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

Ans. There are several reasons for a plc to be converted to a private limited. The major reason is the divorce between ownership and control
. Due to the large amount of shares sold, the number of owners increase, meaning that the original owners will not be the sole investors. Then the control or management of a plc is in the hands of the board of directors (BODs) selected at the annual general meetings (AGMs). So the original owners could feel that they have lost control of the business and to regain it may wish to convert to a private limited company.
The risk of takeover of a plc is very high as shares are sold to the public and if one group controls more than 51% of shares, then ownership may change hand. However this risk is very minute in a private limited company.
Also the plc’s trend to have short term aims due to the investors only being interested in quick gains. So if the original owners of the plc foresee the business going into losses due to damage to long-term investment plans, then they may convert back to a private limited company to minimize losses.

1 comment:

  1. nice answer ....have u written it

    ReplyDelete

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