FUCULTY OF COMMERCE

NAME: NYASHA FREDDY

SURNAME: MUDAPAKATI
REGITRATION NUMBER: B1953680
DEGREE PROGRAM: BACHELOR OF ACCOUNTANCY HONOURS DEGREE
COURSE: COMPANY LAW BS 109
LECTURER: MR 0. F NGWENDE, MR R. MASINIRE & MISS R. CHIRUME
ASSIGNMENT 1

QUESTION
1. advise a group of business men on whether they should form a private or public
limited company (30 marks)
ANSWER

A great number of business choose to incorporate as a company limited by shares rather than
other forms such as the sole trader, partnership, or company limited by guarantee.

My advise on whether to start a private limited company or public limited company to supply
motor vehicle parts is that these business men should consider forming a public company.

Basing on facts offered by Inform Direct Online, a public limited company is not so different
from a private limited company but it has its specific features which reinforce one another,
that gives it some unique advantage. A public company can raise capital through public issue
of shares since it will be on a recognised exchange. Since it can sell its shares to the public
and anyone is able to invest their money the capital that can be raised is typically much larger
than private limited company. This is so because a private company cant advertise its stock
shares to the public, so capital is less.

On public limited company they is also the widening of shareholder base and spreading of
risk. Obtaining capital from a wide range of investors has some advantages over relying on
one or two big investors as many private companies will choose to do to facilitate growth this
usual make the founders uncomfortable as these big investors influence grows bigger and
steers the company in other direction apart from the original one.

Being a public company also promotes growth and expansion opportunities, the value of
being able to raise finance is how it can be employed to serve the business. By having more
finance potentially more readily available and on better terms than a private company, the
public limited company can be in an advantage position to pursue new projects, grow
organically, and fund research and development.

Shares of public company can also be transferred, public company shares are more easily
transferable than those in private equivalent, meaning shareholders benefit from liquidity. If
shares are quoted on a stock exchange, shareholders and potential shareholders will generally
find it easier to transfer shares in the company.

Going public can enhance the options for the founders to exit the business at some point in
the future, if they wish to do so. Both higher transferability of shares and the increased
visibility of the business and its performance may increase the chances of bid interest from
potential suitors
However, as always everything has its pros and cons. For a public limited company its cons
are that there are more regulatory requirements. To help protect shareholders, the legal and
regulatory requirements for a public limited company are onerous than for private companies
for example the need to have at least two directors whereas in private company only one is
needed and there are more onerous rules apply concerning loans to directors.

With a private limited company the shareholders will typically be people known to directors
or founders. A private company will often be selective on whom to admit as a shareholder so
they is not much risk in ownership and control, but in a public limited company its much
harder to control who is a shareholder of the company, its possible that the original power of
directors can lose control of direction of company.

According to Wall Street Mojo online, public limited companies are more vulnerable to
takeovers, at worst a company can become vulnerable to a hostile takeover if a majority of
shareholder agree to a bid. With shares being freely transferable, a potential bidder can bid up
something in advance of launch a bid attempt.

To some up this, my advise as I have illustrated, a public limited company is the best option
for a motor vehicle spares business.
REFERENCES

1. Korchak, j. (2016).Inform Direct: Company formation retrieved on 13 March 2020 at

https://www.informdirect.co.uk.
2. Wall Street Mojo retrieved at https://www.wallstreetmojo.com on 13 March 2020.