Fig. 1 shows a simplified share issue by Harlow Tools plc. The company makes specialist repair tools and wishes to build a new production site. Its director...
Question 1 Report
Fig. 1 shows a simplified share issue by Harlow Tools plc. The company makes specialist repair tools and wishes to build a new production site. Its directors are considering a public limited company because they need a large amount of finance. Shares will be available to members of the public through a stock market. The directors expect some shareholders to be interested mainly in dividends, while others may want the share price to rise.
(a) Define a public limited company. [2]
(b) Calculate the total finance raised if all 400,000 shares are sold for £1.20 each. [2]
(c) Analyse one advantage and one disadvantage to Harlow Tools of becoming a public limited company. [4]
Answer Details
(a) A public limited company is a company whose shares can be sold to the general public [1] and whose shareholders have limited liability [1]. [2 marks]
(b) Total finance is:
\[400000\times£1.20=£480000\]
Finance raised = £480 000 [2 marks].
(c) Selling shares publicly can raise substantial finance for the new production site without a bank loan [1], enabling capacity to increase [1]. However, existing owners may lose control because outside shareholders can buy shares and vote [1]. Public reporting and flotation costs can also reduce available profit [1]. [4 marks]
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