What is a Limited Company?

Definition: Limited companies are their own entity. The firm's finances are completely separate from the personal finances of the owners, and the company is taxed separately.

Types of Limited Entities

Limited companies may be either private or public:

  • Public limited companies must have at least two shareholders for it to be considered public, and there is a minimum guideline for the value of shares to be issued in order for them to be tradeable. This guideline varies among countries.
  • Private limited companies are allowed to have one or more members, however they cannot offer shares to the public.

Private vs. public

A limited company that is private is not limited to the number of members or shareholders it can have, but is only permitted to sell its shares privately. Selling shares privately restricts the company in the amount of capital that can be raised.

On the other hand, the benefit of a public company is that it can attract the public to purchase its shares and so there is no ceiling for raising the most capital.

There is no difference in the ownership of the companies; shareholders are part owners of either type. Limited companies provide the advantage of limited liability for the owners regarding the debts of the firm. An owner can only lose as much as he has invested, nothing more.

How to set up a limited company

A guide to the formation of limited companies can be found at Businesslink.org online.

Distribution of Profits

Dividends are the usual form of profit distribution to the shareholders. Note that profits are often partially retained in the business to be used as working capital.