A limited company is a business registered as a separate legal person from its owners. Because the company itself owns assets, signs contracts and owes debts, the shareholders' financial risk is generally limited to the capital they invested. This separation is the defining feature and the reason the form is popular for growing businesses.
Names differ by jurisdiction. The United Kingdom and Ireland use the private limited company (Ltd); Germany has the GmbH; Italy the SRL (societa a responsabilita limitata); Spain the SL; and the closest US equivalents are the LLC or a C corporation. In most of these countries the company pays corporation tax on its profits, and owners are taxed again personally when they draw a salary or receive dividends.
For instance, a UK company earning 80,000 pounds pays corporation tax on that profit, and the director then pays personal tax on any dividends taken from what remains, an arrangement often more efficient than trading as a sole trader once profits are substantial.
- Separate legal identity and limited liability
- Corporation tax at the entity level
- Extra filing, accounting and disclosure duties
Estimate the numbers with our UK limited company tax calculator.