What is the meaning of LTD in business?
What does LTD mean?
What is the structure of a limited company and how does it work?
In this article, we will break down the notion of LTD so you know all there is to know about it.
Are you ready?
Let’s get started!
Table of Contents
What is the meaning of LTD?
According to Investopedia, LTD (limited) is:
“a standard abbreviation for “limited,” a form of corporate structure available in countries including the U.K., Ireland, and Canada. The term appears as a suffix that follows the company name, indicating that it is a private limited company.”
From this definition, we can gather that LTD is an abbreviation for the term “Limited”.
A limited company refers to the company’s structure indicating that it’s a private limited company.
The corporate structure of a limited company
The structure of a limited company is similar to an incorporated company.
The company is separate and distinct from its shareholders.
In other words, the shareholders of the limited company have limited personal liability to the extent of their capital contribution to the company.
Just like a corporation using the “INC” abbreviation, the shareholders are personally protected should the company become insolvent or is indebted to its creditors.
Also, a limited company can operate through its representatives who can be shareholders or not.
A limited company is similar to a partnership.
Just like a partnership, you need at least two members or shareholders to form the partnership.
Shareholder liability in a “limited” company
A limited company operates as a full-fledged company or corporate entity.
The shareholders of the limited company are not responsible for the actions and liabilities of the company.
The shareholders do have a limited exposure which is to the extent of their initial capital investment in the company.
For example, if a shareholder in an LTD. company invested $10,000 to purchase shares, he or she will have a total liability limited to the $10,000.
How to set up a limited company?
In a jurisdiction where a limited company is authorized to be formed, the setup process will be similar to an incorporated company.
For example, in the UK, the founder of a limited company must:
- Select the name of the limited company
- Use the LTD abbreviation in the name
- Identify the company’s directors
- Identify the company’s shareholders
- File articles of association
- Adopt your company bylaws
- Issue shares to the shareholders
In the UK, a limited company is required to have a director and a secretary.
The role of the director and secretary must be assumed by different people.
In Canada, a limited company can also be formed under provincial or federal laws.
Are there different types of limited companies?
Limited companies can be either public or private.
A private LTD company is a company whose shares are not publicly traded in the stock market or the shares are not made available to the general public.
A public LTD company is a company whose shares are publicly traded in a stock exchange and subject to securities laws.
The public can purchase shares of a public limited company just like they buy shares of an incorporated business.
Continuity of a limited company
A limited company’s life can extend beyond the life of its founders or shareholders.
Just like an incorporated company, a limited company is an ongoing concern.
For so long as it is able to operate and remain profitable, it can continue operating.
If a shareholder passes away or dies, the shares will be transferred to another person or bought back by the company depending on the circumstances.
However, the company is not affected by the death of the individual shareholder.
Public limited company vs Private limited company?
A Public Limited Company or PLC is a widely used corporate structure and abbreviation in the UK and certain Commonwealth countries.
Public companies of important size must use the PLC abbreviation.
An investor seeing the PLC abbreviation can immediately infer that the company is both public and significant in size.
Just like any other public entity, PLC companies are governed by the applicable securities laws, they must issue audited financial statements and inform the public of their financial position so investors can adequately appreciate the fair market value of the shares.
On the other hand, a private limited company is not publicly traded.
The shares of the private limited company are not generally made available to the public.
A private limited company is similar to a partnership and operates through a corporate entity as opposed to the partnership.
Frequently asked questions
What does Ltd mean in a text?
The abbreviation LTD in a text means “limited”.
Generally, the “LTD.” abbreviation is used in business to refer to a limited company.
A limited company is a company that is separate and apart from its shareholders just like an incorporated business.
What does LLC and LTD mean?
LLC stands for “limited liability company” and LTD stands for “limited” company.
The LTD company is more widely used in UK, Canada and certain Commonwealth countries.
The LLC is generally used in the United States.
A limited company is like a partnership but operating under a corporate entity.
A limited company comes into existence when it is legally formed under the law.
Instead of partners, you have shareholders.
A limited liability company is a legal structure used in the United States operated by its members.
It comes into existence when members enter into an LLC Operating Agreement.
What are the advantages of an LTD company?
A limited company can have some interesting advantages.
The most notable advantage is that it can have an unlimited number of shareholders.
In addition, shareholders are not personally exposed to any personal liability resulting from the operations of the company.
The extent of the responsibility of a shareholder is limited by the value of his or her capital contribution to the limited company.
A limited company will also have tax advantages when compared to a sole proprietorship.
What are the disadvantages of a limited company?
A limited company, similar to a partnership, cannot easily sell its shares to outsiders.
Generally, the shareholders must agree on the sale or transfer of shares.
Often, a limited company is private and as a private limited company, they’ll have disadvantages in raising financing.
With more limited means of getting financing, the limited company may need to rely more often on traditional financing options such as loans and debt financing.