IGCSE Economics Paper-2: Specimen Questions with Answers 10 - 10 of 100

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Passage

In an economy there are many large firms. But small firms remain small.

Question 10 (5 of 5 Based on Passage)

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Essay▾

Give two reasons why a private limited company is changed into a public limited company.

Explanation

Circumstances under which a private company is converted into a public limited company are as follows:

  • Conversion by default: A private company has limited number of members to 50 and the right to transfer shares is restricted it also does not offer an invitation to public subscription to its shares. If by chance any of these stated conditions of a company being a private company is violated a company becomes public company by default.
  • Conversion by operation of law: By the operation of law a private company can be converted into a public company if not less than 25 % of paid up share capital of a company is held by one or more public company or if the average turnover of a company for three consecutive years exceeds ₹ 25 crore, or when a private company holds not less than 25 % of paid up capital of public company, or if a private company invites accepts or renews deposit from the public then a private company by the operation of the law becomes a public company.

The other reason for conversion is a private company out of its own will choose to converts itself into a public company.

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