Limited

By:

Arti

Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.

Reviewed by:

Idil Woodall

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Updated:  Jun 21, 2024

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5 min read

3 key takeaways

• “Limited” indicates that the liability of shareholders in a company is restricted to their investment, protecting personal assets from business debts and obligations.
• Limited companies can be private (Ltd.) or public (Plc), each with different regulatory and disclosure requirements.
• The term can also apply more broadly to any situation where there are defined limits or restrictions.

What does “limited” mean in a business context?

In a business context, “limited” refers to a type of company structure where the shareholders’ liability for the company’s debts is limited to the amount they invested in the company. This limitation protects shareholders’ personal assets from being used to pay off business debts, promoting investment by reducing financial risk.

Example

A “Limited Company” (Ltd.) in the United Kingdom is a type of business entity where the liability of shareholders is limited to their shares. If the company incurs debts or faces legal action, shareholders are only liable up to the amount they invested, and their personal assets remain protected.

Types of limited companies

Private Limited Company (Ltd.)

A Private Limited Company (Ltd.) is a business entity that is privately held, meaning its shares are not available to the general public. The main characteristics include:

• Limited liability: Shareholders’ liability is limited to their investment in the company.
• Ownership: Shares are typically held by a small group of investors, often family members or close associates.
• Regulation: Subject to specific regulatory requirements but generally less stringent than those for public companies.

Public Limited Company (Plc)

A Public Limited Company (Plc) is a business entity that offers its shares to the general public and is listed on a stock exchange. Key features include:

• Limited liability: Shareholders’ liability is limited to their investment in the company.
• Public ownership: Shares can be bought and sold by the public, allowing for a broader base of investors.
• Regulation: Subject to more stringent regulatory and disclosure requirements to protect public investors.

Broader applications of “limited”

Legal context

In a legal context, “limited” can refer to restrictions or boundaries placed on rights, actions, or claims. For instance, a “limited power of attorney” grants an agent specific, restricted powers to act on behalf of the principal for particular tasks or decisions.

Financial context

In finance, “limited” can describe investments or funds with specific restrictions. For example, a “limited partnership” involves partners with limited liability who do not participate in day-to-day management, protecting their personal assets.

General use

More broadly, “limited” can describe any situation where there are defined constraints or boundaries. This could include limited time offers, limited resources, or limited access to services.

Advantages and disadvantages of limited companies

Advantages

• Limited liability: Protects shareholders’ personal assets from business debts and obligations.
• Attracts investment: The reduced risk encourages investment, facilitating capital formation and business growth.
• Perpetual existence: The company continues to exist independently of changes in ownership or management, ensuring business continuity.
• Credibility: Limited companies often have greater credibility and easier access to financing compared to unincorporated businesses.

Disadvantages

• Regulatory requirements: Limited companies face more regulatory scrutiny, reporting requirements, and compliance obligations compared to unincorporated businesses.
• Formation and maintenance: Establishing and maintaining a limited company can be complex and costly, involving legal and administrative processes.
• Public disclosure: Public limited companies must disclose financial information and other details, which can be sensitive and used by competitors.

Legal considerations for limited companies

Formation and registration

Creating a limited company requires formal registration with relevant government authorities, such as Companies House in the UK or the Secretary of State in the US. This process involves filing incorporation documents, paying fees, and adhering to regulatory requirements.

Compliance and reporting

Limited companies must comply with ongoing regulatory and reporting obligations, including filing annual returns, maintaining accurate records, and adhering to corporate governance standards.

Shareholder agreements

For private limited companies, shareholder agreements outline the rights, responsibilities, and relationships between shareholders, providing clarity and reducing disputes.

Related topics

• Corporation: Understand the structure, advantages, and disadvantages of corporations, a common form of limited liability entity.
• LLC (Limited Liability Company): Learn about the features, benefits, and formation process of LLCs, a popular limited liability business structure.
• Partnership: Explore different types of partnerships, including those with limited liability, and their legal and financial implications.

The concept of “limited” plays a crucial role in business and legal contexts, offering significant benefits by protecting personal assets and encouraging investment. Understanding its applications and implications helps individuals and businesses navigate these structures effectively.