What do capitalism and colonization have in common? They both owe a lot of thanks to joint-stock companies; businesses that are owned “jointly” by a group of shareholders. In the UK and a number of other Commonwealth countries, publicly-traded companies are referred to as a “public limited company” and are denoted with the suffix PLC.
History of PLCs
So, when were the first public limited companies created? The honor of establishing the first publicly-traded company goes to the Netherlands. In 1602, the Dutch East India Co. issued stocks to the public in an effort to raise capital to finance its voyages to procure spices such as salt, pepper, and tea from the East Indies.
Since that initial public offering, the idea of selling stock in order to raise capital was quickly adopted by Great Britain and imported to the American colonies along with beloved bits of British culture (just like Shakespeare, the Beatles, and the Queen).
In fact, it was partially due to this new strategy for quickly raising large sums of money that the British Empire was able to successfully colonize about 20% of the world at the peak of its reign. While the Spanish and French empires relied mostly upon their monarchs to finance expeditions to the Americas — or the “New World” — British expansion was fueled largely by the efforts of commercial enterprises, many of which raised capital by issuing company shares.
Over time, poor financial management caused the Spanish empire to crumble while the British became the colonizing powerhouse of the 19th century. After a failed attempt in 1809, the Spanish would not establish their own stock exchange in Madrid until 1831, over 200 years after the Dutch introduced the first public limited company.
What does it mean to be a public limited company?
So, publicly traded companies originated in Europe and were later brought over to the New World — but what exactly do they do? Public limited companies are considered “public” because they raise money to carry out their business by selling shares of the company, or “stocks,” to the general public.
When people purchase these stocks, they essentially become partial owners of the company and receive a proportion of the company’s earnings (called “dividends”), as well as the right to make decisions about (some) of the company’s operations at designated shareholder meetings.
If business goes well, shareholders get to enjoy a slice of the earnings pie. But what happens if business goes badly? Fortunately, PLCs are limited liability companies, which means that individuals who purchase company shares are not responsible for any of the company’s debts worth more than the amount they originally paid for the shares.
If you’re interested in investing in stocks yourself, you’ll want to check out a stock exchange, such as the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE). Is there a particular company you’re interested in becoming a partial owner of? By law in the UK and other countries, companies must include “PLC” after their name, so check the fine print to see if your favorite brand is up for sale.
The 100 largest PLCs on the London Stock Exchange are grouped together and grouped into an index referred to as the Financial Times Stock Exchange, also known as the FTSE — the “footsie”. Similar to the US’s Dow Jones, the growth of the FTSE (or lack thereof!) is used as a gauge of how well the UK’s economy is doing overall.
The advantages of public limited companies
The biggest perk of going public and becoming a PLC is that it allows companies to raise a lot of cash in a short amount of time. With those extra resources, PLCs are able to expand their operations, buy up competitors, invest in developing new products, or pay off debts.
Going public also helps to generate a certain degree of credibility and publicity, which can be good for business and attracting big investors.
Drawbacks of being a public limited company
However, with great sums of money comes great responsibility. Going public also means that public limited companies are monitored and regulated much more closely than their private counterparts.
For example, companies must publish documents disclosing the financial health of the company on a regular basis as well as hold meetings open to all share-holders. These companies are also scrutinized more closely by the public and often face pressure from shareholders about how to run business operations (such as increased pressure to implement climate-change resolutions).
To sum it all up…
Public limited companies are cousins of the publicly-traded US corporations you’re probably familiar with (Disney, Apple, Coca-Cola, etc…). They have a number of advantages and often have more resources to innovate than their private counterparts.
However, like anything that involves lots of people and opinions, they also can get complicated. But if you’re looking to try your luck in the stock market, you could consider adding a few PLCs to diversify your portfolio.
Also, check out the rest of our investment education tips in the Academy library. Through some smart investments, you too can conquer the (personal finance) world!