Limited companies

A limited company is incorporated, which means it has its own legal identity and can sue or own assets in its 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.

As limited companies have their own legal identity, their owners are not personally liable for the firm's debts, only for the amount of contributed capital. The shareholders have limited liability, which is the major advantage of this type of business structure.

To form a corporation one should apply for a corporate charter. Obtaining the charter the stockholders, as owners, hold a meeting to organize the corporation, elect the Board of Directors and choose the company's officers. Though the officers of the company supervise daily management, the stockholders always have the final authority. They vote at annual meetings.

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) is often a small business such as an independent retailer in a market town. There is a restriction on the number of members from 2 to 50. There are also restrictions on the transfer of shares which are not traded on the stock exchange.

A public limited company (plc.) is usually a large, well-known business. The number of members from 7 and no limit above this. This could be a manufacturer or a chain of retailers with branches in most city centers. Shares are traded on the stock exchange freely.