What is a Limited Company (LC)?
A limited company (LC) is a legal business structure that separates the company’s finances, assets, and liabilities from those of its owners. As a distinct legal entity, the company can own property, enter contracts, and be sued independently of its members. Owners’ financial exposure is typically limited to the amount they invested or guaranteed.
Key takeaways
- Limited liability protects owners’ personal assets from company creditors beyond their investment or guarantee.
- A limited company is a separate legal person and can own assets and enter contracts in its own name.
- Structures and naming vary by jurisdiction: common abbreviations include Ltd., PLC, LLC, Inc., AG, and GmbH.
- Variants include private vs public companies and companies limited by shares vs by guarantee.
How it works
Legal separation and limited liability: The company’s debts and obligations belong to the company, not its shareholders or members. If the company becomes insolvent, owners normally lose only their invested capital or the amount they guaranteed.
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Ownership and governance:
* Limited by shares — owned by shareholders who hold shares; typically managed by directors.
* Limited by guarantee — owned by guarantors who promise to contribute a fixed amount if the company winds up; often used by non-profits and clubs.
Transferability: Ownership can often be transferred according to the company’s rules and governing law. Private limited companies typically restrict public sale of shares; public limited companies can offer shares to the public subject to regulatory requirements.
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Benefits
- Personal asset protection — owners’ private assets are protected from company creditors (within normal legal limits).
- Clear legal identity — the company can enter contracts, sue, and be sued in its own name.
- Perpetuity and succession — ownership and management can continue independently of changes in membership.
- Capital formation — limited liability can encourage investment because investors’ downside is capped.
- Tax and financial planning — incorporated status may enable different tax treatments and ways to retain or distribute profits (specific rules vary by jurisdiction).
Common variations by jurisdiction
- United Kingdom
- Private limited company (Ltd.) — cannot offer shares to the public; common for small and medium enterprises.
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Public limited company (PLC) — may offer shares to the public and list on a stock exchange once regulatory and capital thresholds are met.
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United States
- Corporation (Corp. or Inc.) — traditional corporate form; must follow state filing rules and file corporate tax returns.
- Limited liability company (LLC) — a flexible hybrid providing limited liability with pass-through tax options; structurally different from corporations.
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Using “Ltd.” or similar suffix depends on state law and proper formation; simply adding a suffix does not create liability protection.
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Germany (example)
- Aktiengesellschaft (AG) — public company able to sell shares to the public.
- Gesellschaft mit beschränkter Haftung (GmbH) — private limited company without publicly traded shares.
Regulatory, tax, and operational details differ across countries and sometimes among subnational jurisdictions. Names and suffixes are meaningful only when the entity has been properly formed under applicable law.
Conclusion
A limited company provides a widely used framework for running a business while protecting owners’ personal assets through limited liability. It creates a separate legal person that can hold assets and obligations, and it comes in several forms to suit businesses of different sizes and purposes. Specific rights, responsibilities, and tax consequences depend on the jurisdiction and the chosen corporate form.