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Assess the likely consequences of Ebac Ltd continuing to operate as a private limited company. - Edexcel - A-Level Business - Question 2 - 2018 - Paper 1
Question 2
Assess the likely consequences of Ebac Ltd continuing to operate as a private limited company.
Worked Solution & Example Answer:Assess the likely consequences of Ebac Ltd continuing to operate as a private limited company. - Edexcel - A-Level Business - Question 2 - 2018 - Paper 1
Step 1
Knowledge of Private Limited Companies
Answer
A private limited company is typically a small to medium sized business, owned and run by a family or a small group of individuals. Shares are sold privately among family, friends, and business associates, and are not available on the stock market. This type of company structure allows existing shareholders to maintain control over ownership and decision-making.
Step 2
Reasons for Remaining a Private Limited Company
Answer
- Control of Ownership: Ebac Ltd specializes in niche domestic appliances and can benefit from the control over ownership that being a private limited company provides. This focus allows them to tailor their product offerings, such as washing machines, to specific market demands without external pressures.
- Re-investment in the Community: The company has established the Ebac Foundation, which emphasizes social responsibility by reinvesting profits back into the community. This could be challenging for a publicly listed company, where profit maximization might overshadow community engagement.
- Flexibility in Decision-Making: As a private company, decisions can be made more swiftly without the need for shareholder consensus that is often required in public companies.
Step 3
Potential Counterbalance to Remaining Private
Answer
- Limited Access to Capital: Ebac Ltd may find it challenging to raise capital for expansion compared to a publicly traded company, which can issue new shares to generate funds. This may constrain their growth in highly competitive markets.
- Lack of Financial Discipline: Being private might lead to less scrutiny and financial discipline. Public companies often face greater pressure to increase efficiency and profitability due to shareholder demands.
- Community Focus vs. Market Demand: While a private status allows them to focus on specific community needs, it may also limit broader market appeal, as the interests of broader shareholders in a PLC could drive innovation and expansion beyond local boundaries.
Step 4
Judgment on Consequences
Answer
In conclusion, Ebac Ltd's decision to remain a private limited company seems to enhance its ability to focus on specialized products and invest in community-building initiatives. However, the potential drawbacks include challenges in accessing capital for growth and the risk of financial complacency. Balancing these factors will be essential for the continued success of the company.