When a business is started, the owner(s) will need to decide what legal structure they are going to set it up under. This might be as a sole trader, a partnership, a charity or a limited company. A limited company is an incorporated company, meaning that it is registered under its own name with Companies House and has its own legal identity separate from the owner (unlike a sole proprietorship or partnership). The business exists in its own right and the owners are not personally responsible for the company’s debts – they have limited liability – so the amount of money that they could lose if the business were to go under is restricted to the amount that they put into the company and it is kept separate to their personal finances and assets.
The ownership of limited companies is divided into shares and the people that own one or more of these shares are called the shareholders. Limited companies can either be private (ltd) or public (plc). Private limited companies are likely to be smaller businesses with all the shares privately owned. A public limited company’s shares can be bought by anyone and are traded on the stock market. Plcs are likely to be larger, well-known businesses. Private limited companies must have at least one director, whereas public limited companies are run by a board of at least two directors and they also have to appoint a qualified company secretary.
Further reading:
- Should I set up my business as a limited company?
- How do I register a limited company?
- How do I choose a legal structure for my business?
- What taxes do small businesses pay?
