You’ve heard of it before, and chances are, you’ve seen an ad or billboard for one somewhere. “Ltd” is an abbreviation of the word “limited.” It is a type of corporate structure and is available in different countries all over the world. The term is usually slapped to your organization’s name to show that it is a private limited company.
2 Different Types of Business Entity as LTD
When shareholders invest their capital into this type of company, their liability is limited to their initial invested capital. If a limited company is unable to pay the debts it owes, the personal assets of its shareholders stay safe.
1.LTD 101
Individuals can buy in limited companies through private sales and become members, who are also referred to as shareholders or company owners. The finances of the company are not just separate from the owners, but are also taxed in a separate way. Only the company itself possesses all profits, pays taxes, and distributes dividends to its shareholders. A director of a company can withdraws funds solely for a salary or dividend or loan payment. Keep in mind that when you launch a private limited company, it will automatically be separated from you and your assets. However, you should keep your corporation’s finances separate from your personal assets.
Getting Started With an LTD
Just like with other types of businesses, setting up an LTD requires a bunch of things:
- The name and address which belongs to your business
- The information of minimum one director and one shareholder
- Scans of a memorandum and your Articles of Association
- Having an Article of Association and a memorandum
- Name and information of anyone whose shares or voting rights in the company exceeds 25%
Once you have all of these, you’re good to go!
2.Limited Companies in the US
In the U.S, limited companies are usually referred to as corporations. You might see the term Corp. or Inc. (which stands for incorporated) as well. That being said, you’ll still see the LTD suffix in some states. Keep in mind that you can’t just slap that suffix and expect to be treated like a limited company. You need to file the right paperwork to protect your company’s liability. Also, it’s important to note that LLCs are structured in a way that’s different from an LTD.
Upsides and Downsides
Obviously, any type of company has its upsides and downsides. We’ll start with the downsides, then give you the upsides so everything doesn’t sound glum!
One downside to an LTD is that the amount of raised capital is restricted, because shares are sold privately. Shareholders are obligated to sign written agreements which transfer shares to an individual who is not part of the company. In the event that the company borrows money which it can’t repay, the director will be obligated to repay based on a previously-signed persona; guarantee. This means that the director does not benefit from personal asset protection and is responsible for any debts or shortcomings.
Before you are completely discouraged, let’s talk about the upsides of an LTD!
There’s no limit to how many shareholders an LTD can have, which means that only one owner won’t break under liability and will instead share the burden with multiple ones. Whoever holds a share, will lose just the exact amount he invested into the company in case debts cannot be repaid and the company becomes insolvent. Then there’s tax. LTDs have more advantages in terms of tax over other organizations such as partnerships or sole proprietorships.
In the event that an owner decides to sell his share or transfer them, it will not signal the end of the company as this type of company is “perpetual,” meaning it can technically exist forever, which can be beneficial to many people. The products coming out of such companies usually have lower costs, and boost profit at the same time. That’s probably why LTD companies get more loans to operate their business and expand their yearly revenue.
Conclusion
Whether you choose to form an LTD or not is completely on you. However, if you decide on forming one, just let us at Prestige Auditors know and we will set everything up for you, and give you all the information you could ever need on small business entity costs . On top of all this, we will guide you on the process of getting the sales tax exemption certificate you will need for your business, whether LTD or otherwise!
