Compare private limited companies and public limited companies
Distinguish private and public share ownership and evaluate how company finance can affect control and accountability.
Section 1.1 · Types of business entity
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover Topic 1.1 only. The 2029 syllabus has a separate document and is not mapped here. Practice is self-checked, not an official Cambridge grade; full timed-paper practice and human subject-teacher review remain outstanding.
Before you begin
- No prior accounting course is assumed. For each business form, compare who owns it, who controls decisions, who supplies finance and who bears risk.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Who normally manages a limited company?
What you will learn
- Explain the role of shareholders and directors
- Compare private company and plc access to share finance
- Evaluate dilution, liability and additional responsibilities
Company ownership is divided into shares
A company is a separate legal entity. Shareholders own it through shares, while directors manage it. Limited liability can make investment less personally risky than ordinary partnership ownership, but investors can still lose the amount invested.
A private limited company does not offer its shares to the general public. Share transfers are usually restricted by its rules. This can help existing owners retain control, while limiting the pool of potential investors.
A plc can seek investment from the public
A public limited company can offer shares to the public, subject to the relevant rules. A wider pool of investors can support larger finance needs, but existing owners may have less control after new shares are issued.
Public ownership brings additional reporting and regulatory responsibilities. A plc is not automatically larger, more profitable or better managed than a private company; compare the business's actual aims, scale and capacity to meet obligations.
Pause and explain
Why could a private company prefer not to offer shares publicly?
Worked example
A private company needs a large amount of long-term finance but its founder wants to retain a majority of voting shares. What company-form trade-off should be considered?
Show the worked solution
- A plc may access a broader pool of public share investors.
- Issuing shares can dilute the founder's voting proportion.
- The company must weigh finance needs against control and additional public-company responsibilities.
Answer A plc may offer access to more share capital, but new shares can reduce the founder's voting proportion and add compliance responsibilities. A private company may preserve closer control but have a narrower investor pool.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A founder owns 80 of 100 voting shares. The company issues 50 new voting shares to other investors. What fraction of the shares does the founder own afterward?
Give me a hint
Use the new total number of shares as the denominator.
Compare my reasoning
- The founder still owns 80 shares.
- There are now 100 + 50 = 150 shares.
- 80 ÷ 150 = 0.5333..., or about 53.3%.
The founder owns about 53.3% of the shares after the issue, so the founder remains the majority shareholder in this simplified example but has been diluted from 80%.
Look for these in your work
- Founder shares unchanged
- New total correct
- Percentage calculated
A company wants a public share offer but its directors say the company will become guaranteed to make a profit. Assess the statement.
Give me a hint
Separate access to finance from the commercial result of using it.
Compare my reasoning
- A public offer may raise finance from a wider investor base.
- The offer does not guarantee demand, efficient use of funds or profit.
- Public-company reporting and regulatory obligations also need to be met.
The claim is incorrect. A share offer may provide funds but cannot guarantee that the business earns a profit. The company must assess its investment plans and public-company responsibilities.
Look for these in your work
- Potential finance identified
- No profit guarantee
- Obligations considered
A family-owned private company wants outside expertise but is worried about losing control. Recommend one way to bring in help and explain one company-finance trade-off.
Give me a hint
Distinguish hiring expertise from selling ownership.
Compare my reasoning
- The company could employ or appoint an adviser without issuing shares.
- If it issues shares, investors gain ownership rights and the existing family's share proportion falls.
- Match the choice to whether expertise or capital is the main need.
If expertise is the main need, the company can hire or appoint a specialist without selling shares. If it needs investor capital, a share issue may help but dilutes the family's ownership proportion and may affect control.
Look for these in your work
- Expertise and finance separated
- Share dilution explained
- Recommendation tied to need
Common mistakes
- Assuming all companies are public
- Assuming a plc must issue shares whenever it needs finance
- Confusing limited liability with a guarantee that shareholders cannot lose money
What can you explain now?
What is a likely effect of issuing new ordinary shares to outside investors?
Compare with the explanation
The existing owners may hold a smaller proportion of votes
New shares increase the number of shares over which ownership and voting rights are divided.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
State the difference between a shareholder and a director.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.