Limited Companies
Business: Cambridge International GCSE (2027 Exams), topic 1.4.3
Limited Companies
Limited companies are businesses that are owned by shareholders. There are 2 types of limited company: private and public. Both share key differences from partnerships and sole traders:
Limited company is incorporated
- A limited company has a separate legal identity from the owners.
- This means that cash, property and debt is in the company’s name and is property (and therefore responsibility) of the company and not the individual shareholders.
Incorporation
- Incorporation is a legal process that involves registering the business and filing legal documents.
- This process makes setting up a limited company more complicated and more costly than starting as a sole trader or partnership.
- Once incorporated, the business can legally be called a company.
- Before incorporation, it is not technically recognised as a company.
- In North America, the abbreviation 'Inc.' is often used to show that a business is incorporated.
Limited liability
- Being incorporated means that the shareholders are protected by limited liability. Limited liability means that the shareholders are only legally responsible up to the amount that they have invested.
- E.g. if a shareholder invests £10,000 in the purchase of shares, they won't be liable for any debt if the company fails (£10,000 is the maximum they can lose).
Owned by shareholders
- Limited liability companies are owned by shareholders. The shareholders of limited companies can have nothing to do with the day-to-day running of the business.
- The more shares a person owns, the more control they are likely to have relative to other shareholders.
Test yourself on Limited Companies
Which of the following is not a type of limited company?
Google is an example of what type of company?