REVISED GCSE FACT FILES Unit 2: The Business Environment For first teaching from September 2008 For first award in Summer 2009 Public Limited Companies Public Limited Companies

In 2000 the company began diversifying into other forms of media and now operates across 3 main sectors; television, Learning Outcomes radio and the internet.

At the end of this unit students should be Public limited company able to:

demonstrate knowledge and understanding of the term public limited company;

identify and describe different limited companies businesses in their local area;

demonstrate knowledge and understanding of the Like a private limited company, a public limited company difference between a private limited company and a like UTV Media is an incorporated business and is therefore public limited company; and a separate legal entity from its owners. The owners of demonstrate an awareness of the advantages and a public limited company are its shareholders and each disadvantages of operating as a public limited shareholder enjoys the benefit of limited liability. company. The key difference between a public limited company and a private limited company is that a public limited company Setting the Scene can offer its shares for sale to the general public through a recognised stock exchange.

UTV Media Advantages of operating as a Public limited company

Raising capital A public limited company such as UTV Media can issue UTV media is a very rare company in that it is a NI based shares for sale to the general public and therefore it PLC. The Company was incorporated as Ulster Television should be able to raise more capital than any other form of on 17th February 1959 and on 31st October 1959, UTV business enterprise. went “on the air” for the first time when Sir Lawrence Olivier delivered its first official broadcast. UTV was the Limited liability first indigenous broadcaster in Ireland and is now available A public limited company is an incorporated business and throughout Northern Ireland and in 70% of homes in the therefore is a separate legal unit from its owners. This also Republic. means that any debts or losses accrued by the business are not the responsibility of the individual shareholders. UTV operates in the most competitive television market in Therefore, if a company such as UTV media were to run up the UK with 60% of homes having access to more than 250 huge debts, the individual shareholders would only lose the competing channels. However, UTV remains the first choice money they had invested in the business. for viewers in Northern Ireland with an impressive 32% share of peak-time viewing in 2007. This gave UTV more than three times the viewership of Channel 4, its nearest commercial competitor and a 52% lead over BBC NI. Continuity Because UTV Media has a legal existence separate from Case Study that of its owners it will not be affected if one particular shareholder decides to sell his/her shares. Shares in public limited companies change hands regularly with very limited Yahoo sued by shareholders impact on the operation of the business. Web giant Yahoo has said it is facing seven shareholder lawsuits over its handling of a takeover bid, from Microsoft, Specialisation which it has rejected. The directors of Yahoo have said it is worth more than the $31-a-share it is being offered. But Microsoft has maintained that its cash-and-share proposal is a “full and fair” valuation.

The impasse has triggered seven lawsuits against Yahoo from disgruntled shareholders, including some large pension funds who feel that the board should have accepted the offer. Five accuse the firm, which owns one of the most popular internet search engines, of rebuffing Public limited companies such as UTV Media are generally Microsoft without trying to get a better deal. They claim large companies who can have a large number of directors that the board of directors are looking after their own or managers. This means that each manager can specialise interests and not the interests of the shareholders. in the area where they are best suited. This specialisation and division of labour should help UTV Media become more Less privacy efficient and productive. Under UK law public companies such as UTV Media are required to make certain aspects of their affairs available Disadvantages of to the public for general inspection. This information may operating as a help competitors gain valuable insights into the operation public limited company and management of the company. Threat of takeover Set up costs Because shares in UTV Media are offered for sale on a stock Setting up UTV Media as a public limited company was a market, other firms may attempt to buy these shares and time consuming and costly process as there were official therefore gain control of the company. If this occurs against procedures to complete to ensure that the business the wishes of the current board of directors it is known as a complied fully with UK company law. hostile takeover bid.

Divorce of ownership and control Activity In UTV Media the shareholders are the owners of the company but it is the directors and Cafédirect managers who make the Cafédirect is the UK’s largest Fairtrade hot drinks company. day to day decisions and Their brands, Cafédirect, Teadirect and Cocodirect are sold therefore it is they who through most of the major supermarkets. They buy from 39 control the company. This producer organisations in 13 countries, ensuring that over situation can cause difficulties a quarter of a million growers receive a decent income from if the objectives of those who trade. control the company differ from the objectives of those The company was founded in 1991by a number of charities who own it. including OXFAM and Traidcraft. Today they work with 39 grower organisations across 13 developing countries, encompassing 264, 666 farmers and directly improving the lives of more than 1.4 million people. In 2004, the company successfully executed the UK’s biggest ethical public share issue to become a publicly listed company, raising £5 million from 4,500 investors which allowed the company to put in place ambitious plans for growth.

1. What type of company was Cafédirect when it was formed in 1991? 2. What type of company was Cafédirect after 2004? 3. What do you think are the main reasons why Cafédirect would have wanted to make this change to its legal status in 2004?

Key Terms

• A public limited company is also a business which is incorporated and therefore separate legal entity from its owners, however a public limited company can offer its shares for sale to the general public through a recognised stock exchange. • A stock exchange is a market for the trading of financial assets such as company shares and bonds. • Limited liability means that individual shareholders are not personally liable for the debts of the company they are only liable for the amount of money they have invested in the company.

Revision questions

1. What do the letters PLC represent? 2. Where does a PLC such as UTV media sell its shares? 3. What advantages does a PLC such as UTV media have over a private limited company? 4. List 5 PLC’s that operate in your local area. 5. What is meant by the divorce of ownership and control? 6. How much would the shareholders of a PLC such as UTV lose if the company was to go bust?