Limited Companies

This lesson covers the structure and features of limited companies — both private limited companies (Ltd) and public limited companies (plc). You need to understand the process of incorporation, the legal implications of forming a company, and the key differences between private and public companies. This is part of AQA topic 3.1.2.

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What Is a Limited Company?

Key Definition: A limited company is a business that has its own legal identity, separate from its owners (shareholders). This means the company can own assets, enter contracts, sue, and be sued in its own name.

The process of creating a limited company is called incorporation. Once incorporated, the business becomes a separate legal entity — a legal "person" in its own right.

Incorporation

Key Definition: Incorporation is the legal process of registering a business as a limited company with Companies House. This gives the business a separate legal identity from its owners.

To incorporate, the founders must submit:

1. Memorandum of Association — a legal statement signed by all initial shareholders confirming their intention to form a company.
2. Articles of Association — a document setting out the rules for running the company, including the rights of shareholders, the powers of directors, and procedures for meetings.

Once registered, the company receives a certificate of incorporation and becomes a separate legal entity.

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Limited Liability

Key Definition: Limited liability means that the shareholders' financial responsibility for the company's debts is limited to the amount they have invested (paid for their shares). Their personal assets cannot be seized to pay business debts.

This is the most significant advantage of incorporation. Compare it with unlimited liability:

Feature	Unlimited Liability (Sole Trader / Partnership)	Limited Liability (Ltd / plc)
Legal identity	Business and owner are the same legal entity	Company is a separate legal entity
Debt responsibility	Owner personally liable for all debts	Shareholders can only lose what they invested
Personal assets at risk?	Yes — home, savings, personal property	No — protected from business debts
Risk for investors	Very high	Lower — encourages investment

Exam Tip: Limited liability is the single most important reason why entrepreneurs choose to incorporate. It encourages risk-taking and investment because investors know they cannot lose more than they have put in.

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Private Limited Companies (Ltd)

Key Definition: A private limited company (Ltd) is a company whose shares are privately held and cannot be sold to the general public on a stock exchange. Shares can only be transferred with the agreement of existing shareholders.

Features of an Ltd

Feature	Detail
Ownership	Shares are held by a small number of private individuals — often family members, friends, or business associates
Share transfer	Shares cannot be sold on the stock exchange; they can only be transferred with the consent of other shareholders
Minimum shareholders	1
Directors	Must have at least 1 director
Financial reporting	Must file annual accounts with Companies House, but less detailed disclosure than plcs
Name	Ends in "Ltd" or "Limited"

Examples of Private Limited Companies

• JCB (construction equipment, owned by the Bamford family)
• Dyson Ltd (owned by Sir James Dyson and family)
• John Lewis Partnership (owned by the Partnership Trust on behalf of employees — a unique structure)
• Aldi UK and Lidl UK (both private companies)