This means there is a limit to the owner’s responsibilities for the debts of the business. They only risk losing the money they have invested in the business. Their personal possessions are safe.
Limited companies are owned by shareholders.
What are shares?
The owners of a limited company are known as shareholders. This is because they have bought shares in the company.
Who is in control?
Each share entitles the shareholders to one vote, therefore the more shares a person owns the more influence they have. They proportion of a business owned depends on the number of shares purchased.
How are profits shared?
Some of the profits can be held back and reinvested in the company. The remaining profits are divided according to the number of shares owned. This payment is known as dividend.
Private limited company (Ltd)
These are owned by small groups of shareholders, usually family and friends. If someone wants to buy shares, the other shareholders have to make a private decision whether to let them in.
Public limited company (Plc)
Any member of the public can buy shares in this type of company. These are much larger than private limited companies.
Limited companies are incorporated. This means limited companies have a separate legal identify from their owners. They are actually a person in the eyes of the law. This means in the event of a legal dispute, the company will be sued rather than its owner. The company enters into contracts with customers and suppliers rather than the owner owners themselves. This whole process if becoming a separate legal entity is known as incorporation.
Incorporation means that a firm can:
Buy, own and sell assets in its own name.
Enter into contacts.
Be taken to court by customers or suppliers.
Take others to court.
Be taken over by new owners through transfer of shares.