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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 a private limited company
Answer
A private limited company is defined as a small to medium-sized business, typically run by the family that owns it. In this structure, shares are sold to friends, family, and business associates, while being restricted from sale on the stock market. Consequently, the existing shareholders control who becomes a new shareholder.
Step 2
Reasons for staying as a private limited company
Answer
Ebac Ltd, being a supplier of specialized domestic appliances such as dehumidifiers, benefits from the control of ownership associated with being a private limited company. This aspect allows the company to maintain a focused direction, particularly in expanding its washing machine manufacturing.
Moreover, shareholders have decided to reinvest profits back into the company via the Ebac Foundation, promoting local community benefits. This commitment would be challenging to achieve under the pressure of a public limited company that prioritizes shareholder returns.
Step 3
Potential counterbalance
Answer
Despite the advantages, there are also notable drawbacks to remaining a private limited company. Financial expansion opportunities are limited compared to public limited companies, which can tap into larger pools of capital through stock market listings. Additionally, this restriction can hinder Ebac's ability to compete within market sectors that require significant investment, such as washing machine manufacturing.
Moreover, a public listing could impose greater financial discipline, compelling the company to operate more efficiently and respond to shareholder expectations for returns on their investments.
Step 4
Potential judgment
Answer
Ebac has grown successfully as a private limited company, specializing in particular niche markets without external ownership complicating its operations. This familial ownership aids in maintaining business identity and community ties. However, as markets become increasingly competitive, the limitations in funding from a narrower group of shareholders and other finance sources may become a significant hurdle to growth and innovation.