What is LTD Company?
Is a limited company a corporation?
What are the essential elements you should know!
In this article, we will break down the notion of LTD Company so you know all there is to know about it!
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Table of Contents
What Is LTD Company
A LTD Company refers to a “Limited Company”.
A limited company is a type of corporation a business owner may form to run and operate a business creating under a separate legal entity.
In essence, the “LTD” company owners will benefit from personal liability protection offered by companies.
Generally, limited companies are available under the laws of countries such as the United Kingdom, India, Ireland, Canada or Australia.
Just like shareholders in a corporation, the limited company owners can purchase shares and transfer their ownership to others.
A LTD company resembles a limited liability company or LLC in the United States.
LTD Company Definition
A Ltd. company or Limited company is a legal entity formed in accordance with the law enabling an entrepreneur, or business owner to operate a business under a separate business entity.
The LTD. is an abbreviation for the word “Limited” appearing in the name of all limited companies.
Just like a corporation, a limited company shelters its shareholders from liability.
In essence, business creditors can only go after the assets of the company if it becomes insolvent or there is an event of default.
The shareholders’ personal assets are not exposed to seizure should the company fail to respect its financial obligations.
Limited Company Characteristics
A limited liability company has key features and characteristics offering business owners important benefits.
First, a limited liability company is distinct and separate from its shareholders or members.
In essence, the company can own assets, incur debt, conduct business, exercise civil rights, enter into contracts, and do anything necessary to successfully operate a business.
The LTD company, depending on the country, may need at least two shareholders who buy into the shares of the company.
Just like a corporation, limited companies will then appoint directors and officers to run the business.
Being a separate legal entity, LTD companies are required to keep account of their revenues and expenses, pay company taxes, and ensure that its finances remain separate from the personal finances of its shareholders.
Typically, a private limited company offers tax advantages compared to a sole proprietorship structure or partnership.
As a result, small businesses and small business owners may be inclined to operate their business under a private limited company to benefit from such tax advantages.
Limited Company United States
In the United States, there are no legal vehicles specifically called “limited company”.
Rather, in some states, the LTD abbreviation may be used in a company name instead of “INC” or “CORP” as a descriptor.
Many states offer a “limited liability company” as a legal entity, some states allow the “limited partnership” form, while others only permit the “LTD” or “Ltd.” descriptor in a corporation’s name.
It offers limited liability protection to its members and allows them to report the company income on their personal tax reports (pass-through taxation).
A Limited Partnership or LP is a type of partnership where some partners are “limited partners” while others are “general partners”.
The general partners run the business and have more personal responsibility towards the business whereas limited partners are like passive investors who are not involved in the operations of the business.
Private or Public Limited Company
A company can be a private limited company (PVT LTD.) or a public limited company (PLC or LTD.).
Let’s look at these two types of limited liability companies in more detail.
A “private limited company” has the following characteristics:
- The company shares are not publicly traded
- The company shares are not made available to the public
- Any share transfer requires the consent of the shareholders or board of director
- The company must have at least two shareholders but no more than fifty
- The company has lighter disclosure requirements than a public limited company
- It’s a popular company structure for small businesses
You can consider the private limited company to be similar to a partnership in the United States.
On the other hand, a “public limited company” is a public company and has the following characteristics:
- The company shares are publicly traded on the stock market
- The company shares are made available to the public
- The company will generally have more than fifty shareholders
- There are no maximum number of shareholders the company may have
You can consider a public limited company to be similar to a public corporate entity in the United States.
Limited Company Takeaways
So, what is limited company?
Let’s look at a summary of our findings.
If you enjoyed this article on LTD Company, we recommend you look into the following business terms and concepts. Enjoy!