Limited Companies (Ltd & PLC) & Franchises

This lesson covers the more complex forms of business ownership: private limited companies (Ltd), public limited companies (PLC), and franchises. These structures are used by larger businesses and offer significant advantages — particularly limited liability — but also come with additional complexity and regulation.

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Limited Companies

A limited company is a business that has its own legal identity, separate from its owners. This means the company can own property, enter into contracts, and be sued in its own name.

The most important feature of a limited company is limited liability.

What Is Limited Liability?

Limited liability means that the owners (shareholders) are only liable for the amount they have invested in the company. If the business fails, their personal assets (house, car, savings) are protected.

Term	Definition
Limited liability	Shareholders can only lose the money they have invested, not their personal assets
Shareholder	A person who owns shares (a portion of ownership) in a limited company
Share	A unit of ownership in a company
Dividend	A share of the company's profits paid to shareholders
Incorporated	The company is registered as a separate legal entity

graph LR
    A[Company Debts] --> B[Company Assets Used]
    B --> C{Can company assets cover the debt?}
    C -->|No| D[Shareholders lose their investment only]
    C -->|Yes| E[Debt Paid]
    D --> F[Personal assets are PROTECTED]

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Private Limited Companies (Ltd)

A private limited company (Ltd) is a company whose shares cannot be sold to the general public. Shares can only be sold privately, usually to family, friends, or approved investors.

Key Features

Feature	Detail
Ownership	Owned by shareholders (minimum 1)
Shares	Cannot be sold on the stock exchange; sold privately with existing shareholder approval
Liability	Limited liability — shareholders risk only their investment
Legal identity	Separate legal entity from its owners
Accounts	Must file accounts with Companies House (publicly available but less detailed than PLC)
Control	Owners maintain control by restricting who can buy shares
Examples	Dyson, JCB, Iceland Foods, Specsavers

Advantages of Ltd

1. Limited liability — owners' personal assets are protected.
2. More capital — can raise money by selling shares to approved investors.
3. Control — shares cannot be sold publicly, so owners maintain control of the business.
4. Continuity — the company continues to exist even if an owner dies or leaves.
5. Professional image — having "Ltd" after the name can increase credibility.
6. Separate legal entity — the company can own property and enter contracts in its own name.

Disadvantages of Ltd

1. More regulation — must file accounts with Companies House and follow company law.
2. Cost — more expensive to set up than a sole trader or partnership.
3. Less privacy — some financial information must be made public.
4. Shared profits — profits must be shared with shareholders as dividends.
5. Restricted share sales — cannot sell shares on the stock exchange, limiting the ability to raise large amounts of capital.

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Public Limited Companies (PLC)

A public limited company (PLC) is a company whose shares are traded on the stock exchange and can be bought by any member of the public.

Key Features

Feature	Detail
Ownership	Owned by shareholders — anyone can buy shares on the stock exchange
Shares	Traded publicly on a stock exchange (e.g. London Stock Exchange)
Liability	Limited liability — shareholders risk only their investment
Minimum share capital	Must have at least £50,000 in share capital
Accounts	Must publish detailed annual reports and accounts
Control	Risk of hostile takeover if someone buys a majority of shares
Examples	Tesco PLC, Apple Inc., Unilever PLC, Barclays PLC

Advantages of PLC

1. Access to large amounts of capital — can sell millions of shares on the stock exchange.
2. Limited liability — shareholders' personal assets are protected.
3. Profile and prestige — being listed on the stock exchange raises the company's profile.
4. Continuity — the company has a permanent existence independent of its shareholders.
5. Easier to transfer ownership — shares can be freely bought and sold.

Disadvantages of PLC

1. Risk of hostile takeover — if someone buys more than 50% of shares, they gain control of the company.
2. Less control for original owners — shares are widely dispersed among many shareholders.
3. Expensive to set up — the process of listing on the stock exchange (an IPO) is costly and complex.
4. Strict regulation — must comply with detailed reporting and governance requirements.
5. Pressure from shareholders — shareholders may push for short-term profit at the expense of long-term strategy.
6. Full disclosure — must publish detailed financial information, which competitors can access.

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Comparing Ltd and PLC

Feature	Private Limited Company (Ltd)	Public Limited Company (PLC)
Share sales	Private — restricted to approved buyers	Public — traded on stock exchange
Minimum share capital	£1	£50,000
Risk of takeover	Low — owners control who buys shares	High — anyone can buy shares
Regulation	Less strict	Very strict
Capital raised	Limited to private investors	Potentially millions from public investors
Privacy	More private	Less private — must publish detailed reports

Exam Tip: A common exam question asks you to advise a business on whether it should become a Ltd or PLC. Consider factors such as the need for capital, the desire for control, the cost of listing, and the level of regulation.

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Franchises

A franchise is a business model in which a franchisor grants a franchisee the right to use its brand name, products, and business systems in exchange for a fee and ongoing royalties.

Term	Definition
Franchise	An agreement where a franchisor allows a franchisee to operate under its brand
Franchisor	The business that owns the brand and grants franchise rights
Franchisee	The person or business that pays to operate under the franchisor's brand
Royalty	An ongoing payment from the franchisee to the franchisor, usually a percentage of sales

How Franchises Work

graph LR
    A[Franchisor] -->|Provides brand, training, supplies| B[Franchisee]
    B -->|Pays initial fee + ongoing royalties| A
    B -->|Operates the business locally| C[Customers]

Examples of Franchises

• McDonald's — most McDonald's restaurants are owned by franchisees, not by McDonald's itself.
• Subway — one of the world's largest franchise networks with over 37,000 locations.
• Costa Coffee — operates both company-owned and franchised outlets.
• Domino's Pizza — franchisees operate individual stores under the Domino's brand.

Advantages for the Franchisee

1. Established brand — the franchisee benefits from a well-known brand name and customer base.
2. Training and support — the franchisor provides training, marketing support, and operational guidance.
3. Proven business model — lower risk than starting from scratch because the model is already successful.
4. Marketing — national advertising is often provided by the franchisor.
5. Easier to secure finance — banks are more willing to lend to franchisees of established brands.