What Is a Limited Company?
What is a Limited Company? A Limited company, also called a partnership, is a corporation that limits partners or shareholders. In a limited business, the liability of its members or shareholders is confined to what they have agreed to invest or guarantee to the business. Limited companies can be limited by equity or by guarantee. The latter can further be divided into sole proprietor or partnership, limited liability company and corporation.
There are many kinds of limited companies, which include partnerships, limited liability partnerships (LLPs) and unincorporated common law firms. These limited companies have their own characteristics and uses. Some share equity and have voting rights like corporations. Others are restricted in what they can do like issuing shares.
Limited partnerships act as the general partner of any other partnership. It therefore owns its equity or ownership interest in the whole partnership and holds all the shares of each partner. Limited partnerships act like general partnerships. However, limited companies have fewer restrictions than limited partnerships. They can issue shares and have the same voting rights like general partnerships. This makes them similar to unincorporated businesses.
Limited liability companies (LLCs) are another kind of limited company. Like its name implies, it has limited liability. Its shares are also limited in what they can do, like issuing shares and having the same voting rights as other shareholders. However, unlike corporations, they do not have to disclose their financial information. Limited liability companies can be owned by one or more people, but cannot increase their share ownership beyond the capacity of their investors. As for public limited companies, they are registered with the state, get annual management fees and pay taxes.
Like any other company, limited companies also have tax savings options. They can use these options if the IRS finds their liability too large to be handled. They may choose to settle for a discharge of all liabilities instead of paying back taxes. They may also choose to pay less taxes.
There are different ways of organizing limited liability partnerships (or LLCs). Some use the “classification” option while others prefer the “creative” option. In a classified company, all the shareholders are considered as one unit; the only distinction between them is their status as investors. The other form of limited liability company is the “creative” one, where the members can continue to act as one company even if they decide to independently establish another entity. Both of these types have their own advantages and disadvantages.
Limited liability partnerships are established for the benefit of all the shareholders of a company. The main purpose of such a partnership is to limit personal liability for the debts of a partner. If a shareholder incurs liability in a personal capacity, that person’s liability to the company will be discharged. Similarly, if an investor loses his stake in a company, he does not lose his right to have the shares sold or transfer. He is only entitled to sell the shares he owns – not to the whole company.
Private limited companies are established in the same way as public limited companies. The only difference between the two is the method by which they are created. A private limited company is established for the benefit of its investors. As with a public limited company, shares are sold in order to raise funds for the operating and capital expenses of the business. However, unlike a public limited company, shareholders usually do not have voting rights on corporate decisions. This means that the decisions of the limited company are made by a board of directors.