IGCSE, A Level Business Student Forum

Q6 Analyse the disadvantages of private limited company. [6]

Possible Structure:
[KN]
[AN]
[AN+]

[KN]
[AN]
[AN+]

(kn) shared ownership
(an) invest from one person might be more then others but she might still get equal, even tho her investment was more
(an+) this might cause the company to loss a shareholder
(kn) loss of control
(an)the main owner might sell of off too many shares making someone else more powerful
(an+)and if the other shareholder has violated some rule she could be removed as she isn't the one with the most power

[KN]limited expertise and resources
[AN]private limited companies may face challenges in attracting top talent or accessing specialized skills due to limited resources
[AN+]this can impact the company's ability to innovate, compete, or adapt to rapidly changing market conditions

[KN]ownership concentration
[AN]this can result in power struggles or disagreements among shareholders.
[AN+]disputes among shareholders can hinder decision-making and operational efficiency.

[KN] Limited capital generation
[AN] While private limited companies have the advantage of limited liability, they often face challenges in raising capital compared to public companies.
[AN+] Since shares cannot be openly traded on the stock market, attracting external investors can be more difficult.

[KN] Complex regulatory requirements
[AN] Private limited companies are subject to various regulatory requirements, including filing financial statements, holding regular meetings, and complying with tax regulations.
[AN+] These legal obligations can be complex and time-consuming, leading to administrative burdens and legal fees

[KN] Ownerships and control.
[AN] PVT LTD companies have multiple owners because they sell shares.
[AN+] Decision-making gets more complex due to many people having control of the businesses.

[KN] Limited capital.
[AN] Private limited companies may face challenges in raising significant capital compared to public companies.
[AN+] They cannot issue shares to the general public, which can limit their ability to raise funds for expansion, investment, or research and development.

[KN]Find difficult to raiase capital then public limited company.
[AN]prvt limited cannot isue share to publicwhich limit their ability to attract large number of investors'
[AN+]so they have to rely on smaller group of shareholder which can restrict their financial resources.

[KN]ownership and control issues'
[AN]prvt business are held by families an relatives so lead to conflicts between each other.
[AN+]dificult to attract key talent

[KN] limited growth
[AN] its growth will be limited due to a limited number of shareholders and restrictions on share transfers.
[AN+] it may be challenging to bring in new investors or expand the business quickly.

[KN] limited brand exposure
[AN] Private limited companies have limited brand exposure compared to public companies.
[AN+] This can affect marketing and branding opportunities

(Kn) risk of losing control(an) if the original owner sells too many shares then it can lose their position as majority share holder (an+) thus losing its major control to someone else and will have to buy back shares to get back on too

(Kn)comparatively less capital investment than plc (an) plc due to being open to the general public get more funds whereas this is not possible for a private limited company as it only sells to close relatives, family and friends(an+) this means less funds available causing a hindrance in future plans

[KN] Answerable
[AN] you have to be answerable to the share holders as limited shares are sold to a specific people
[AN+] this would create a pressure on management which may effect their productivity

[KN] profit shared
[AN] as when you have sold part of your company to the others you also have to share profit with them
[AN+] due to this the business owner would be discouraged to work for the business as the profit is minimal

[KN] Limited capital can be earned by private limited companies.
[AN] Private limited companies may not earn much of the capital as they may have to face many challenges in the market.
[AN+] This leads towards less chances of growth of a business.

[KN] Ownership and control issues.
[AN] Private limited companies might lead towards conflict as they are held by close people.
[AN+] This results in more conflicts leading towards the decline stage of the business.

[KN] Conflicts among the Shareholders.
[AN] Differences in opinions, goals etc can lead to a clash among shareholders which can affect company's operations and decisions.
[AN+] Thus this may lead to loss of market share .

[KN] Risk of failure.
[AN] In case of insolvency shareholders may lose their investments , and so directors could face legal liabilities.
[AN+] Thus solving of these matters can be highly time consuming and costly.

[KN]Inefficient decision making process
[AN]There may be communication and coordination issues between shareholders which means they might take more time to make the final decision hence this can delay output
[AN]As a result a business may not be able to cater all customers in time leading to dissatisfaction which might put of some customers leading to low competitiveness


[KN]Limited finance
[AN]A private limited company can have maximum 50 shareholders who can finance the business which means growth may be restricted to a certain level
[AN]Hence a company may have to convert to a plc

[KN]No free entry or exit of shareholders
[AN]In a private limited company shareholders cannot leave the company easily which means their investment is on risk
[AN]hence attracting shareholders may be difficult

[KN]Inefficient decision making process
[AN]There may be communication and coordination issues between shareholders which means they might take more time to make the final decision hence this can delay output
[AN]As a result a business may not be able to cater all customers in time leading to dissatisfaction which might put of some customers leading to low competitiveness

[KN] Limited capital.
[AN] Private limited companies may face challenges in raising significant capital compared to public companies.
[AN+] They cannot issue shares to the general public, which can limit their ability to raise funds for expansion, investment, or research and development.

[kn] Private limited companies are subjected to more regulations than sole traders or partnerships
[an] leading to a low amount of control and lesser power in decision making
[an+] therefore limited capital which limits there funds for expansion or investment
[kn]Private limited companies are required to pay registration fees and other costs associated with incorporation
[an] thus due to such extra costs it is difficult to find profit to invest into business
[an+] leading to slower expansion

[kn] shares possess restricted flexibility
[an] as they cannot be sold to the public
[an+] this in turn raises less capital for business

[kn] high costs
[an] private limited companies take up mor expenses and are harder to manage
[an+] because of the requirement to follow business laws, leading to slow business activity