LTD is the abbreviation for “limited company.” A LTD company is a type of corporation that limits the personal liability of the corporation’s shareholders.
What Does LTD Mean?
LTD company is a private company with one or more owners. The “limited” structure separates liabilities from owners and companies. The owners are also known as shareholders and may or may not be a part of the company’s daily activities and management. The executive of the company is hired and manages all operations.
All assets and all debts are the liability of the company. The company pays taxes except for shareholders who report private income or profit distributions to their employees on private tax returns. If the company becomes insolvent, only business assets are utilized to pay insolvency liabilities, not shareholder personal property.
Types of Ltd company
Within the broader spectrum of limited companies, you’ll find a number of sub-divisions. These include:
- Company limited by shares: This is the most popular structure, especially for small and medium-sized businesses. Liability rests with the shareholders and is limited by the value of the shares that they hold. So, if the company were to go insolvent, each director would only be liable for the share of their original investment. It’s a good option for people who want to run a business for profit and keep the surplus revenue for themselves.
- Company limited by guarantee: This is most likely to be used by a non-profit organization where the profits are reinvested into the organization. With this option, there are no shareholders. There are only directors or guarantors. Those guarantors are limited against business debt up to the amount that they guarantee.
Difference Between LTD and Limited Partnership
LTD corporation is not a strict company in the United States as it is in Europe. Instead, it is occasionally used as a corporate descriptor. Some countries use’ Limited Partnership ‘ agreements, while others enable’ LTD’ or’ Ltd.’ to be used at the end of the trade title filed with the State secretary. Since LLC and LP are often confused, some countries have no LLCs.
There is a significant distinction in the United States between an LTD business and a Limited Partnership. Some partners in an LP are limited partners and some are general partners. Like silent partners who do not participate in daily activities, limited partners operate the company.
A company that uses LTD on its behalf is still a corporation and not LP. LPs are not popular because general partners in an LP remain personally responsible for the liabilities.
Advantages of an LTD company?
- Protect your private assets– If your company fails, your private assets will not be at risk.
- Claim for more expenses – All that is classified solely as business costs including accounting fees, equipment, software, phones, travel, entertainment and more can be claimed.
- Take control of your business – without risking being bound up in a third-party manager or umbrella company, you have full control over your economic affairs.
- Credibility – Limited companies have higher trust than other business structures in most suppliers and customers.
Organization Requirements and Restrictions
Limited companies are required to have a director and a secretary. One individual can not fill each roles. An outside party may be hired to carry out the secretarial duties. The director and secretary are the company’s directors, and ought to honorably represent the shareholders.
No restrictions exist on when a company have to start trading shares, however employees can buy into the company to become shareholders. Outside investors also can purchase shares.
How to set up a Ltd company?
Starting a Ltd company is fairly straightforward. You can do it by going directly to Companies House or using a formations agent such as The Formations Company. Our role is to take care of all the details for you. We make sure all documentation has been filed correctly and provide ongoing advice and support.
To become a Ltd company, you will need at least one director and one shareholder. If you’re a sole trader and aren’t involving anyone else in your company these can be the same person. Or, you may have a group of founders, in which case they can each be issued with a number of shares each.
You are protected if anything goes wrong as a Ltd company. Also, the amount of tax you have to pay should also be reduced. Here’s why: once you set up a Ltd company, you will become an employee who is paid a wage. You can use this to bring your personal income down to a lower threshold while you make up the rest with dividends – these are taxed at a much lower rate.
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