Theory question 102
Business FinanceCommerce 2 (answer five questions)
(a) State any four sources of capital for a public limited company.
(b) Explain any four advantages and disadvantages respectively of converting a business into a public limited company.
Show the model answer
(a) Four: issue of shares (ordinary/preference) to the public; debentures; loans and overdrafts from banks; ploughing back profits (reserves); trade credit; hire purchase/leasing; government grants; loans from development banks.
(b) Advantages (four): large capital from selling shares to the public; limited liability of shareholders; separate legal entity – continuity (perpetual succession); shares freely transferable on the Stock Exchange; easier to borrow; economies of large-scale production; professional management.
Disadvantages (four): costly and lengthy formation procedures; ownership separated from control – shareholders have little say; accounts must be published – no secrecy; many legal regulations; delay in decision-making; impersonal relations with staff and customers; risk of takeover; profits shared among many shareholders.
Give four of each in (b) and explain each briefly.