Limited Companies I

Posted by Abd. Ghafar ARM

Limited companies are incorporated businesses, or corporations – that is they are set up as legal entities in their own right and exist quite separately from their owners.

The owners of limited companies are called shareholders, because they own a part, or share of the company. As a legal entity a limited company is responsible for its own affairs and debts. The owners or shareholders of the business have limited liability for the debts of the business. A limited company can own property and equipment, employ people and borrow money. It also pays business taxes on its profits.
Types of Limited Companies

There are broadly two types of limited companies: private limited companies and public limited companies. Private limited companies are normally smaller businesses. the number of shareholders of private limited company may be restricted; shares cannot be offered for sale to the general public or transferred without the agreement of all the shareholders. Public limited companies are generally larger than private limited companies.  Shares in public limited companies can be offered for sale to the general public and may be  freely bough and sold on the stock market of the country in which the company has been  registered.                                  

While the general principles of private and public limited companies are similar throughout the world, specific legislation concerning the establishment and running of limited companies does vary. In Bermuda, for example, companies are classified as “local”, “permit”, or “excepted”. At least 60% of the shareholders of local companies must be Bermudian. Permit companies may be incorporated outside Bermuda, but are permitted to trade within the country. Excepted companies are exempt from the 60% rule, but may not normally compare with local companies within Bermuda. In South Africa, a special type of corporation known as a “closed corporation” exists with up to ten members who “contribute” to the capital of the corporation, rather than buy shares in it.

Similarly, the titles used in different countries vary. Many countries have adopted the term ‘limited’, or ‘Ltd’, after the name of the company, as in JCB Ltd, the British-based company that produces and sells heavy earth-moving machinery throughout the world. To distinguish between private and public limited companies, some English-speaking countries have adopted the initials ‘plc’ after the company’s name to denote a public limited company.

In other countries, such as Australia and South Africa, private limited companies are known as ‘proprietary’ limited companies, which are abbreviated to ‘Pty Ltd’ after the company’s name. French and Spanish speaking countries, such as Argentina and Brazil, use ‘SA’ (French: Société Anonyme; Spanish; Sociedad Anomina) to identify public limited companies. Japan has joint stock companies (KK), which are similar to public limited companies in most respects, and limited liability companies.

How do you set up a limited company?

It is more difficult to set up a limited company than a sole trader business or a partnership. The company must be registered with the registrar of Companies (in some countries the Commercial Registry, Inspectorate of Corporations or other body responsible for registering limited companies limited companies and corporations) and have a Memorandum and Articles of Association. These are drawn up by a solicitor.

The Memorandum must give: the name of the company and address of its registered office; the purpose for which the company has been set up; the amount of share capital to be issued and the number of shares; a statement that the liability of shareholders will be limited; the names and addresses of at least one director and the company secretary.

The Articles of Association cover: who manages the company; shareholders’ rights; procedures and frequency of shareholders’ meetings; how the profits of the company are to be distributed. The Articles of Association can be altered later as long as they do not conflict with the Memorandum.

A Certificate of Incorporation is issued before the company can commence trading. All companies must lodge their accounts, including balance sheet, note to the accounts, and reports from the directors and auditor, with the Registrar of Companies or other appointed body. These can be inspected by the public.