Ltd is a legal form of business that is widespread in the UK, in the states of English law and in many offshore zones.
In order to understand the essence of the concept of Ltd and its differences from other legal forms, it is necessary to understand what organizational and legal forms exist for.
Why do we need organizational and legal forms?
Much in life is difficult or impossible for one person to do. For example, one person can produce a pair or several pairs of shoes, but it is impossible to build a high-rise building or a road by himself. Since ancient times, people have learned to unite to achieve common goals. The common goals of several people may be to make a profit or some kind of positive change in society, for example, to improve the condition of the poor. Often, in order to achieve common goals, it is necessary to add or create in the course of cooperation expensive property (for example, a plant with workshop buildings and machine tools in them, or a fleet of road equipment). Also, in the course of joint activities, it is necessary to reach various agreements with other people or associations of people. As a result, in any joint activity, there is a need to regulate several important issues:
- How to protect the interests of all people united to achieve a common goal?
- Who among the united people will be personally responsible for common decisions and to what extent?
- How to dispose of the property obtained as a result of joint activities?
- What to do with the profit or loss resulting from the joint venture?
- How to pay taxes if the state, on the territory of which the joint activity is conducted, requires it?
The law in force on the territory of Ancient Rome did not provide answers to most of these questions. With the development of human civilization and the growing importance of associations of independent people for solving various problems, the need to legitimize joint activities increased. Today, in all countries, legislation allows various forms of associations of citizens and regulates relations between them.
Organizational and legal forms in English law
English law is the backbone of the legal systems in Great Britain and in 15 states of the Royal Commonwealth - countries in which the Queen of Great Britain is the head of the Constitution. Commonwealth countries include: Australia, Antigua and Barbuda, Bahamas, Barbados, Belize, Grenada, Canada, New Zealand, Papua New Guinea, Saint Vincent and the Grenadines, Saint Kitts and Nevis, Saint Lucia, Solomon Islands, Tuvalu and Jamaica.
In English law, organizational and legal forms are divided into two types: unincorporated and corporate. An example of an unincorporated organizational and legal form is an individual entrepreneur (Sole Trader), just like in Russia, an individual entrepreneur is responsible for the results of his activities (according to his obligations) with all his property. For example, for a debt of 10 thousand pounds, an individual entrepreneur can lose a house worth 50 thousand pounds. The house will be sold, the debt will be covered from the income from the sale, the selling expenses will be compensated, and the remainder will be returned to the entrepreneur.
This situation severely restricts both the entrepreneur himself, who is not interested in putting his family at risk, and his counterparties, who may not want to conclude a deal with an individual, knowing about the possible dire consequences for his family. Also, the property of an individual entrepreneur used by him for business can be requisitioned against the debt of the person himself or his family members. In addition, an individual entrepreneur cannot sell or donate his business, including to his relatives and friends.
Another example of an unincorporated form of ownership is a partnership. A partnership cannot own common property, which means it cannot take loans against it. On the other hand, the partnership has an important advantage over other forms of association. In case of making a profit, only the members of the partnership are taxed as individuals, which means that there is no double taxation, when the tax is first levied on the profits of the organization, and then the tax on the income of its founders.
Corporate forms of an organization allow its founders to fully enter into legal relations as a single person who can own property, be responsible for their obligations and pay taxes. Similar formations appeared in the law of many countries in the 19th century. As a rule, the liability of the founders of such an enterprise is limited by some rules. For example, an organization can be forced to pay its founders for a debt, but only if the organization's property is insufficient and if the founders, by their actions or inaction, contributed to the emergence of a problem situation. This situation stimulates entrepreneurship, including risky business projects that become the engine of progress.
Ltd is a private limited company
In English law, there is a legal form of Limited Company (limited liability company). The expression "limited liability" has a strict interpretation in the law and allows two types:
- The responsibility of the founders as part of their investment in the company is the formalized founding contributions. For example, as a result of an unsuccessful deal, the company owed 100 thousand pounds. The property of the company is estimated at 50 thousand pounds, and the two founders contributed 1000 pounds at the foundation of the company. In this case, the company may lose its property, and the founders will pay an additional 1000 pounds. Houses, cars and other personal property of the founders will not be foreclosed, despite the fact that 48 thousand pounds of debt will not be paid off.
- Responsibility of the founders within the framework of the warranty obligations drawn up by them. Example: in the case of a debt of 100 thousand, it could turn out that when the company was founded, one of its co-owners signed a commitment on readiness, in case of problems, to repay the debt in the amount of 30 thousand, and the second - in the amount of 5 thousand. These amounts, respectively, will be recovered from them on account of the debt.
The limited liability company is not responsible for the personal obligations of its founders. If one of the founders took out a car on credit and could not pay it off, then debt collection cannot be imposed on the company, even if he is the main owner of it. Strictly speaking, the share of the founder in the company can be set to pay off the debt. It will be sold, a new co-owner will appear in the company, but the company itself will not suffer from this.
The capital of a limited liability company can be formed from contributions of the founders, profits, loans and property acquired in the course of activity. At the same time, the responsibility of the founders for the company's obligations remains at the level of the founding fee.
Limited companies in the UK can exist in one of two forms regarding the possibility of transferring shares to new owners. In Ltd - private limited liability companies - the founders can offer their shares to other persons or organizations. Such a transaction is governed by an agreement between the founders, spelled out in the Articles of Association and the memorandum of incorporation of the company.
Public limited companies (the designation of such a company is plc, has a translation: public limited company) offer part of their shares (stakes in the company) to an unlimited number of persons on the market. At the same time, the company does not have the right to refuse a specific person to acquire its shares, as is permissible in private companies. On the other hand, in order to ensure fair and open trading in shares of public companies, the state obliges them to publish a large amount of data on their activities in all available media and establishes stricter procedures for the execution of transactions for the sale of shares. As a rule, the company takes the form of a PLC as a result of the development of the originally established Ltd after a complex and expensive procedure for admitting to the open market of shares.
Ltd outside the UK and Commonwealth countries
In the Russian Federation, the analogues of Ltd are limited liability companies (LLC) and joint stock companies (JSC). The analogs of PLC in Russia are public joint stock companies (PJSC). In the legislation of the Russian Federation and Great Britain, there are some differences in the requirements for LLC and Ltd, respectively, however, they are not fundamental. Moreover, there may be some differences in relation to Ltd in the laws of different countries of the English crown.
In the USA, the analogue of Ltd is the public-law form "corporation". The name of an organization of this form must contain the abbreviations inc. (from the word incorporated) or corp. (abbreviation of the word corporation). The difference between the two is that Corp. usually indicates that the company was formed as a result of the merger of several firms. Generally speaking, in the United States, the laws of each state are responsible for regulating business. Therefore, the requirements for companies, including - and their names - may be different in different states. Delaware law, for example, prescribes the form of a private company Ltd. Also in the United States, the common form of companies is called LLC. The abbreviation llc stands for limited liability company. It is also a private limited company, but unlike Ltd, it does not pay taxes on profits. It is believed that in such a company all profits go to the founders, and they pay their taxes from it. In many cases, this form turns out to be optimal in terms of taxation.
In Germany, limited liability companies are abbreviated as GmbH. The abbreviation gmbh stands for Gesellschaft mit beschränkter Haftung (limited liability company).
Russian company name in a foreign language
The Civil Code of the Russian Federation provides for the existence of the name of a Russian company in a foreign language. At the same time, the founders are not limited in what language to translate the name of their organization and how to translate its form of ownership. Considering that there is no absolute coincidence of the legal statuses of organizations in Russian and foreign legislation, the founders are free to choose any form for the name of their company in a foreign language. So, if it is assumed that American companies will be foreign business partners, then the abbreviation Inc. can be used in the official name of a Russian LLC in a foreign language. or Corp. For partners from many countries, it will be clear that the letters ltd are used in the company name. You can also translate your company name into German with the abbreviation gmbh or any other language with the abbreviations accepted in the respective country.
