Which of the following is a disadvantage of a public limited company?

• A. Setting up costs can be expensive
• B. Outsiders can take control
• C. More financial information has to be made public
• D. May be more remote from customers

Answer: (B)

The situation tested is how ownership and control can change when a company opens up to the public. In a public limited company, shares are sold to the public, so ownership is spread beyond a small group of insiders. This means outsiders can buy enough shares to gain influence or even take control of the business. Losing control to external investors is the key downside of being a PLC, because it can shift strategic direction and leadership away from the founders or current managers.

While higher setup costs and the requirement to publish more financial information are real disadvantages of a PLC, they don’t address the issue of who actually runs the company as directly. The option pointing to outsiders taking control best captures the primary risk associated with a PLC’s public ownership.