Private limited company

A private limited company (Ltd) is a business owned by shareholders that has a separate legal identity from its owners. In law the company is its own entity, so it can own assets, sign contracts and keep trading even if an owner dies or sells their shares. It does not have to be big — plenty of small start-ups register as an Ltd.

Owners and directors

Shareholders each own a part of the company. They receive a share of the profits, called dividends, and they elect directors to run the business day to day. A shareholder can also be a director. For example, three friends setting up a small board-game design studio as an Ltd might each buy 1,000 shares at £2 each, putting £6,000 into the business between them, and one of them could also sit on the board as a director.

Limited liability

An Ltd has limited liability. If the company fails, shareholders lose only the money they invested, so their own home, car and savings are protected. The company's own assets, such as its laptops and office furniture, can still be sold to pay its debts — limited liability does not make debts disappear.

Advantages and disadvantages

• Advantages: limited liability lowers the owners' personal risk; new shares can be sold to private investors, bringing in money and expertise without borrowing; and because the company has its own legal identity it carries on if a shareholder dies.
• Disadvantages: setting up costs more and needs legal paperwork; accounts must be filed at Companies House and are publicly available; profits are shared out as dividends; decisions take longer and there is more regulation; and an owner who steps back from running the business can lose control as the directors make the decisions.

An Ltd cannot offer its shares to the general public. Only a public limited company (plc) can do that, for example by selling shares on the stock exchange, and a plc is a separate type of ownership.