Ltd Company Information Basics

by News Guy on April 16, 2012

If you are interested in forming an ltd company, also known as a limited company or a limited liability company, it is important to understand how the company works and the basic principles behind the company.  An ltd company is owned by shareholders who hold shares in the company as investments.  These shareholders vote on matters important to the company and on what director to hire to manage the day-to-day operations of the company.

Liability

The liability of the investors that choose to invest in the company is limited to the amount invested.  The investors cannot lose any more than that if, for some reason, the business goes under.  Knowing that their losses are limited to the amount that they put into the company encourages business owners to set up the companies and investors to finance the companies.  In the event that the ltd company goes out of business, any people or businesses that have a claim against the company can only recover money from the company’s existing assets.  The personal assets of the shareholders cannot be claimed as restitution for the debts owed by the company.

Setting Up The Company

There are a number of things that must be done to set up an ltd company.  The company must be registered with Companies House and once the registration has been verified, the company will be issued a Certificate of Incorporation.  A Memorandum of Association will be created to detail the purpose of the business and set out what the company has been created to do.  The rules governing what the directors can do regarding the company and the rights of the shareholders concerning voting will be set forth in the Articles of Association for the company.

Types Of Companies

There are two different types of ltd companies that are commonly seen.  The first type is the public ltd company, whose shares can be traded on the Stock Exchange and purchased by the general public.  The second is the private ltd company, with shares that are not available for purchase by the general public.  Some private ltd companies choose to become public ltd companies to increase the amount of financing available to the company.

There are some disadvantages to being a public ltd company.  Being a public ltd company means that certain financial information about the company must be released to the public where it can be reviewed by anyone, including customers and business rivals.  Some public ltd companies have to focus on short-term objectives instead of long term plans in order to provide shareholders with a steady stream of income from dividends.  Setting up a public ltd company is also costly and complicated, requiring the help of accountants and lawyers to complete all of the paperwork needed by regulators.

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