A limited company has special status in the eyes of the law. These types of company are incorporated, which means they have their own legal identity and can sue or own assets in their own right.
The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder.
Because limited companies have their own legal identity, their owners are not personally liable for the firm’s debts. The shareholders have limited liability, which is the major advantage of this type of business legal structure.
Unlike a sole trader or a partnership, the owners of a limited company are not necessarily involved in running the business, unless they have been elected to the Board of Directors.
There are two main types of limited company:
- a private limited company (ltd) where shares are sold privately and not traded publicly
- a public limited company (plc) where shares are sold publicly on an open market such as the London Stock Exchange