06 Analyse one advantage and one disadvantage of CHINO being a public limited company. [6]

[Sir Afzal Shad]

CHINO is a public limited company. The directors want to open a new coal mine. All the coal will be exported. The Managing Director is hopeful that the Government will allow the coal mine to be opened. She said: ‘CHINO always meets legal controls. In an area of high unemployment surely creating jobs is more important than protecting the environment. Most stakeholder groups including shareholders and suppliers are happy. CHINO will not be asking for any Government support.’

06 Analyse one advantage and one disadvantage of CHINO being a public limited company. [6]

Possible KNs:
Advantages:
> Able to sell shares on stock market
> Access to more sources of finance
> Limited liability
> Separate legal identity
> Better status OR seen as lower risk

Disadvantages:
> Have to disclose accounts
> Many legal requirements/regulations
> Selling shares expensive
> Dilution of control

Please read the answer of the previous student & if the answer seems well developed don't use the same KN in your answer, try to give new one.

[Muzamil Ahmed]

Advantage
[KN] Being able to sell shares on the stock market
[APP] Since CHINO is looking to open a coal mine which needs lots of investment in getting the mine on lease & machinery, it needs large sums.
[AN] This helps the company get enough capital to invest in the equipment for mining and they can expand more quickly and they don't have to rely on profits or loans. This can attract investors who want to benefit from future profits which can support long term growth.

Disadvantage
[KN] Dilution of control in decision making
[APP] Since CHINO is operating a coal mine, how much coal to extract per day or which method of extraction to use needs to be discussed with stakeholders.
[AN] Incase, if some shareholders want profits faster over stable growth this means they would ask for capital intensive methods to extract coal, lowering job opportunities and hampering relations with the government.

Examiner Comments: Stand Corrected.

[Mahrukh]

[KN]being publicly traded enhances a company's reputation and trust
[APP]since CHINO is a public limited company, which means they trade publicly which leads to more people knowing about their business and hence leads to attracting investors, skilled employees and customers
[AN+]this further leads to increase in investment and quality production of goods or services and increase in sales.

[KN]loss of control (dilution) of the original owner
[APP] as other shareholders influence decisions, the real owner may be at a loss of power which can lead to lesser profit share for him, no one actually listening to his commands and hence there will hostility among the shareholders
[AN+]this can further lead to any shareholder leaving the organization, distraction from actual business activities and hence potential downfall for the business

Examiner Comments: Correct the fol;
AN1, APP2, AN2

[Meerab baig]

[KN]: The Owner might be over burdened.
[App]: As the business is looking to invest in more outlets, no work-life balance is promised for the sole trader.
[AN]: As a result, the owner might be stressed, leading to sickness which might mean less passive working hours towards the business and eventually the business might collapse.

[KN]: Loans through bank or private investors.
[APP] : Since the owner is a sole trader, it can be hard to convince banks or private investors to invest money into the business as their funds are limited and they can get more return through formally registered bigger giants.
[AN]: Hence, as less funds are available due to sole trader not being able to provide enough working capital, the business might not be able to have every product in stock which will lead to opportunity cost being practiced that can lead to less consumer satisfaction if they don't find their desired product. This can lead to the customers being lost to other grocery stores as the competition in the market is high.
MOderator comment:
Rebuild your answer

[Shahmir Arshad]

KN:Access to more sources of finance
APP:CHINO plans to open a new coal mine.This will involve high costs such as land, machinery, and safety equipment.All the coal will be exported, and CHINO does not want government support.
AN:Because CHINO is a public limited company, it can raise large amounts of finance by selling shares.
This makes it more likely the mine can be opened without relying on the government.As a result, CHINO can increase production, exports, and profits, supporting business growth.
KN:Dilution of control
APP:In a public limited company, shares are owned by many shareholders, which can reduce the directors’ control over decisions.
AN:Some shareholders may oppose the coal mine due to environmental concerns.They can pressure the directors to change their decision.This may slow down decision-making or stop the project, even if the directors think creating jobs is more important.