Knowing the difference between 'Limited' (Ltd.) and 'Incorporated' (Inc.) can make all the difference when navigating the world of business. These terms refer to two popular business structures, but their meaning and use can vary depending on where you are. In this guide, we’ll simplify the differences between Ltd. and Inc., highlight their key features, and shed light on related terms like 'Co.' and 'LLC.' Let’s dive in!
What does limited (Ltd.) mean?
A limited company, or Ltd., is a private business structure where shareholders’ financial responsibility is limited to the amount they’ve invested. It’s a popular choice in the UK, especially for small to medium-sized businesses looking for a secure and straightforward setup.
Key features:
Limited liability: Shareholders are only responsible for debts up to the value of their shares.
Private ownership: Shares cannot be traded on the public stock exchange.
Legal separation: The company is a separate legal entity, meaning it can own assets, incur liabilities and enter contracts independently of its owners.
Annual reporting: Companies must file financial statements and annual returns with Companies House.
Who uses an Ltd.?
Startups and small businesses seeking liability protection
Family-owned businesses
Businesses prioritising control over public trading flexibility
How do you set up an Ltd.?
To set up a limited (Ltd.) company in the UK, you must register your business with Companies House and comply with all legal and financial requirements. This involves submitting essential details, appointing directors, and providing a structure for your company. You can learn more in our guide to how to set up a limited company. In a nutshell, you'll need to:
Choose a unique company name that meets legal guidelines
Appoint at least one director and, if applicable, a company secretary
Determine the structure of shareholding and allocate shares
Prepare and submit a memorandum and articles of association
Register your company online with Companies House or by post
Set up a business bank account and register with HMRC for taxes
What does incorporated (Inc.) mean?
Incorporated, or Inc., refers to a business that has been formally established as a corporation. This term is widely used in the United States, Canada, and other countries with common law legal systems.
Key features:
Corporate structure: Inc. companies are structured as corporations with shareholders, a board of directors and officers.
Share trading: Shares can be publicly or privately traded, depending on the corporation type.
Limited liability: Like Ltd., the liability of shareholders is limited to their investments.
Taxation: Corporations often face double taxation - once on profits and again on shareholder dividends.
Regulatory oversight: Inc. companies face stricter regulations and governance requirements.
Who uses an Inc.?
Large enterprises and multinational corporations
Companies planning to raise capital through public markets
Businesses operating in jurisdictions where 'Incorporated' is the standard term
Ltd. vs. Inc.
While Ltd. and Inc. share some similarities, such as limited liability for owners and legal separation from shareholders, they differ in a few key areas. Here's the breakdown:
Aspect | Limited (Ltd.) | Incorporated (Inc.) |
|---|---|---|
Region | Common in the UK and Commonwealth countries | Common in the US and Canada |
Ownership | Privately owned, shares not publicly traded | Can be privately or publicly owned |
Governance | Typically smaller, less formal governance | Board of directors required |
Taxation | Single taxation on profits (UK) | Often double taxation on profits and dividends |
Purpose | Ideal for small/medium businesses | Common for large-scale operations |
What does Co. mean?
'Co.' is short for 'Company' and is often used as a generic term to denote a business entity. It doesn’t provide specific legal information about the company's structure or liability. In practice, Co. is often used alongside Ltd. or Inc. to form the complete company name, such as 'ABC Co. Ltd'.
Key features:
Simply signifies a business entity
Does not indicate the liability or legal structure
Often seen in combination with Ltd., Inc. or other suffixes
What does LLC mean?
An LLC, or Limited Liability Company, is a hybrid business structure that combines the flexibility of a partnership with the limited liability of a corporation. This structure is commonly used in the United States and other jurisdictions where LLCs are recognised.
Key features of an LLC:
Limited liability: Members are not personally responsible for business debts.
Taxation: Profits are taxed once as personal income of the members (pass-through taxation).
Flexibility: No strict requirements for governance or management structure.
Ownership: Owned by members, who can be individuals, corporations or other LLCs.
Who uses an LLC?
Entrepreneurs seeking a flexible, low-regulation structure
Small businesses in the US aiming to avoid double taxation
Partnerships that want added liability protection
FAQs
Is incorporated the same as limited?
No, 'incorporated' and 'limited' are not exactly the same. The term 'incorporated' is typically used in the US and Canada for corporations, while 'limited' is more common in the UK for private companies. Both structures ensure that shareholders' personal assets are protected from business debts.
What is the difference between a limited company and a corporation?
A limited company (Ltd.) is usually privately owned and smaller in scale, with shares not traded publicly. A corporation (Inc.), on the other hand, can be either private or public and is often larger, with more formal governance and the ability to raise capital through public stock markets. Corporations also tend to face stricter regulatory and taxation requirements compared to limited companies.
Final thoughts
Choosing between Ltd. and Inc. comes down to where your business operates and its goals. While both structures offer limited liability and legal protection, their specific features cater to different business scales and jurisdictions.
Consulting a legal or financial professional can help you understand the implications of each option and make the best decision for your business. Get in touch today to see how our small business solicitors might be able to help.
References
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.