Compare private and public limited companies
Explain company ownership, shares and limited liability, then weigh these features against control and compliance needs.
Cambridge IGCSE Business 0264, 2027–2029 syllabus, Topic 1. Apply concepts to the stated business and weigh benefits against costs and stakeholder effects. Written practice is self-checked and does not certify exam readiness
Before you begin
- No previous business study is assumed. Read each scenario for the decision-maker, objective, available evidence and constraints.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What does limited liability generally limit for a shareholder?
What you will learn
- Distinguish private and public limited companies
- Explain limited liability
- Evaluate the trade-off between finance and control
A company is legally separate from its owners
A private limited company is owned by shareholders, but its shares are not offered to the general public in the same way as a public limited company's shares.
A public limited company can offer shares to public investors subject to applicable rules. The word 'public' describes access to shares, not government ownership.
Limited liability changes the owners' exposure
Limited liability generally restricts a shareholder's financial loss to the investment, subject to legal exceptions and the specific circumstances. It can make investment more attractive and separates company assets from personal assets.
Company formation may involve disclosure, regulation and administrative responsibilities. A public company may access more finance but can dilute control and face greater scrutiny.
Pause and explain
Why might a public limited company be able to raise more share finance?
Worked example
A growing family company wants outside investment but wants to keep voting control within the family. Compare a private and public limited company for this aim.
Show the worked solution
- Both are companies with shareholders and limited liability in the usual case.
- A public share offer can raise finance from more investors.
- Consider control and the private company's share transfer restrictions.
Answer A private limited company may help the family keep ownership within a smaller group, while a public limited company may access a wider pool of investors but could dilute family control. The family should compare the required finance and applicable company rules.
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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 shareholder invests $2,000 in a limited company that later fails with debts. Explain the usual protection and one qualification.
Give me a hint
State the general limit and avoid making an absolute legal claim.
Compare my reasoning
- Shareholder liability is generally limited to the investment.
- The company can still owe debts.
- Specific legal exceptions or circumstances can matter.
The shareholder would generally risk the $2,000 investment rather than automatically owing all company debts personally. Specific guarantees, misconduct or legal exceptions may alter the position.
Look for these in your work
- General principle stated
- Company debt distinguished
- Qualification included
A private limited company wants to raise capital from the public without changing its legal form. Identify the issue and a possible alternative.
Give me a hint
Consider the share-access distinction between private and public companies.
Compare my reasoning
- Private-company shares are not offered to the general public in the same way.
- A public limited company can offer shares publicly, subject to rules.
- Other finance could include loans or private investment, each with trade-offs.
The proposed public offer may conflict with its private-company form. It could consider a public limited company conversion or other funding such as private investment or borrowing, comparing control, cost and obligations.
Look for these in your work
- Share rule recognized
- Alternative identified
- Trade-off noted
A founder says becoming a public limited company is best because it raises more finance. Evaluate one benefit and two trade-offs before recommending.
Give me a hint
Compare funding capacity with ownership, scrutiny and obligations.
Compare my reasoning
- A wider share offer can provide finance for growth.
- New shareholders may dilute control.
- Public-company compliance and disclosure can add cost and scrutiny.
A public limited company may raise substantial share finance, but the founder could lose voting control and face greater disclosure and regulatory costs. It is suitable if the finance benefit exceeds these trade-offs and the company can meet its obligations.
Look for these in your work
- Benefit explained
- Two trade-offs
- Conditional recommendation
Common mistakes
- Calling a public limited company state-owned
- Treating limited liability as no possible personal risk in any circumstance
- Assuming shares can always be transferred without restrictions
What can you explain now?
What does limited liability generally limit for a shareholder?
Compare with the explanation
The shareholder's financial loss to the amount invested
This describes the usual protection, subject to legal exceptions.
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Make it stick
How does a public limited company differ from a government-owned organisation?
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.