Have you ever encountered company names that have “LTD” or “Ltd.” and wondered what this meant? The meaning for this code is really simple: it stands for “limited.” But what does that mean in business?
What “LTD” Really Means in Company Names
In a limited company, the owners’ or shareholders’ liability is limited to the capital that they originally invested. It’s an organizational form that isn’t just about the name but the way the company is structured.
If a limited company becomes insolvent (when a troubled company can’t pay its creditors), the shareholders’ personal assets remain protected. Banks or other financial institutions can’t go after those assets.
Advantages of Limited Companies
There are different types of limited companies, but here are some advantages they enjoy:
Protection of Shareholders’ Personal Assets
Have you heard of companies going bankrupt, with the owners or shareholders also losing their personal assets to pay for the company’s debts and other liabilities?
That stuff won’t happen in a company with “LTD” on its suffix (as long as it’s registered as a “limited company”, anyway).
Easier to Get a Loan
It might be easier for a limited company to get a loan than a company with sole proprietorship or a partnership. These loans can be useful in providing more money for operations or company expansions.
Company Exists into Perpetuity
The company can still exist even if the owner transfers or sells their shares.
Disadvantages of Limited Companies
Although the shareholders are protected, the director can be held responsible for the company’s finances.
For example, the director should offer a personal guarantee to repay any company loan, in the event that the company can no longer pay it.
Limited Sale of Private Shares
You can’t share your stocks in public, and all the shareholders should agree to sell or transfer shares to someone outside the company. So, there’s a restriction in the amount of capital the company can raise.
Depending on certain arrangements, it’s possible that the company will need to pay additional taxes if loans aren’t paid at year end.
Types of Limited Companies
In some places, you can have the following:
- LTD – limited (common in the US)
- PLC – public limited companies (common in UK and commonwealth countries)
- LLC – limited liability companies
- Corp. – corporation (common in the US)
- Inc. – another suffix of corporation or “incorporated” (common in the US)
- AG (Aktiengesellschaft) – public limited companies in Germany that can sell shares publicly
- GmbH – private limited companies in Germany that can’t sell shares publicly