Limited companies

All limited companies are incorporated [Incorporated: A firm with a separate legal existence. ], which means they can sue or own assets in their own right. Their owners are not personally liable for the firm's debts (limited liability [Limited liability: Owners are not personally liable for debts. Their losses are limited to the amount they invested in the business. ]). 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 [Shareholder: An individual investor who own part of a limited company. ].

Shares are traded on the Stock Exchange

A public limited company (PLC) can sell its shares on the Stock Market, while a private limited company (Ltd) cannot. Unlike a sole trader or a partnership, the owners of a limited company are not involved in the running of the business, unless they have been elected to the Board of Directors.

To become a limited company, applicants have to submit a Memorandum of Association which states the business' name, address and main purpose. It also describes the liability and amount of capital [Capital: Money (or assets). ] invested. The internal workings of the company including the number of directors, how they are elected and what their roles are described in The Articles. This also describes how profits will be divided. When the Memorandum of Association have been submitted the Registrar of Companies issues a Certificate of Incorporation which allows a limited company to begin trading.

A public limited company first has to raise sufficient capital, through selling its shares to the public. It has to produce a prospectus, which explains how the business is run, and what it intends to do in the future. Once all this has been done, the Registrar issues a Trading Certificate, which allows the newly formed PLC to start trading.