Business – 5.2 Sources of finance – Business ownership and sources | e-Consult

Advantages of equity finance for a PLC

• Large amounts of capital: By issuing shares to the public, a PLC can raise substantial funds for expansion, research and development, or acquisitions.
• No repayment obligation: Unlike debt, equity does not require regular interest payments, reducing cash‑flow pressure.
• Enhanced credibility: A publicly listed equity base signals stability, attracting suppliers, customers, and further investment.

Disadvantages of equity finance for a PLC

• Dilution of control: New shareholders gain voting rights, potentially limiting the original owners’ ability to make strategic decisions.
• Cost of equity: Investors expect higher returns than lenders because they bear greater risk, making equity more expensive in the long run.
• Regulatory burden: PLCs must comply with extensive reporting and governance standards, increasing administrative costs.

Comparison with a partnership

• Control: Partners retain full control and make decisions collectively; equity finance is rarely used, so there is no external shareholder influence.
• Cost of finance: Partnerships typically rely on personal funds or bank loans, which may be cheaper than equity but increase personal liability.
• Growth potential: Partnerships are limited by the partners’ personal wealth and borrowing capacity, restricting large‑scale expansion compared with a PLC’s ability to tap public equity markets.

Overall, equity finance offers a PLC the capacity for significant growth and reduced repayment risk, but at the expense of ownership dilution and higher expected returns for investors. A partnership enjoys tighter control and potentially lower financing costs but may struggle to secure the large capital needed for major long‑term projects.