“Ltd” stands for “Limited”, I know that. But exactly how are these companies limited? And how come I only see these letters after the name of a company based in the UK or Australia?
And can anyone tell me what “AG” and “GmbH” stand for when they appear next to a company’s name? I’ve seen these for companies based in Switzerland and Germany, respectively, and I’ve had a heck of a time trying to track down the explanation of these abbreviations and their precise translations.
GmBH stands for “Gesellschaft mit beschraenkter Haftung” which means “company with limited liability.”
AG means “Aktien Gesellschaft” which indicates their shares are traded publicly.
I believe that “Limited” originated because the owners’ (shareholders’) liability is limited to the amount that they have invested. That is the same as our corporation. This is, or was, different from the case of a single proprietor or partnership in which all of the owner’s assest are at risk in case the business becomes legally liable. For example, if one of the single proprietor’s products kills or injures someone he can be sued personally as John Doe, not just as John Doe Co.
AG stands for “Actien Gesellshaft” (the spelling might be a little off) or “Action Society” and I think is the same as our Inc.
I haven’t the slightest idea about GmbH.
Q.E.D. got in while I was composing and even corrected my spelling.
David Simmons has got the Ltd bit correct. It comes from the company’s limited liability to legal action but also for debts. In a limited company, the person/company owed money cannot pursue the owners of the company. Also, the stock/shares in the company are not publically traded. Publically traded companies are called Plc in the UK.
Rick
Is Ltd. the same as LLC, then? (I think LLC stands for Limited Liability Corporation, but I may be incorrect.)
Because you’ve never been to Ireland?
BTW AG, Aktiengesellschaft means that a company’s capital is in shares, but not necessarily that they are publicly traded. An AG can have all of its shares owned by one person or other corporation, or by several parties who are selling shares not at all or only privately. GmbH (in Austria: GesmbH), is a company owned by one or more parties whose liability is limited to their capital stake. It is a more efficient way (no supervisory board, no AGM) to organize a company with simply structured ownership.
Minimum capital in Germany: GmbH 25,000 EUR; AG 50,000 EUR.
What’s the Italian equivalent? I have it just on the tip of my tongue. In Spain you have S.A. (Sociedad Anónima) and S.L (Sociedad Limitada).
Isn’t Italian S.p.A.?
French is SARL: Societé à Responabilité Limité.
From the description given upthread, I’d say Ltd. sounds about the same as the U.S.'s Co. or Inc. – that is, just a regular company. The difference between a Co./Inc/Corp. and an LLC has to do with the tax treatment of the profits of the corporation (which is now in rather a state of flux because of the recent tax changes).
–Cliffy
So does a company have to do anything to use the Ltd with their name? I had a furniture repair/resotration business and did a lot of work for an antique furniture business that had the Ltd after their name. I didn’t give it much thought at the time. And this is in the US.
What is the special treatment for profits and such for the LLC companies? I have seen this in business names and have often wondered what it is for. The ones I can think of recently have all been auto body shops using LLC after their name.
Exactly which of the “indicia of incorporation” are appropriate to a given business is a function of state law. Most (all?) states require that a company use such an indicator so that people dealing with the company understand that they deal with an incorporated entity and not an individual. Most states allow a typical corporation to get by with Co. or Inc.; Inc. also is appropriate (at least in some states) for non-profits. If the business you dealt with used “Ltd.,” your home state may allow (or allowed at the time) such a designation; I’m not aware of any state which does, but I only know about a handful. (I did look at Missouri and Kansas, and Ltd. doesn’t appear to be allowed in either.) Also, the company could be a foreign corporation which had registered to do business in your state; many states allow a business to use its regular designation even if native companies aren’t allowed to use that same designation. Otherwise, the business was in violation of the law. (Some U.S. states appear to have allowed Ltd. to apply to a limited partnership, although traditionally that is referred to in the U.S. as “L.P.”) This isn’t exactly uncommon with small businesses who don’t know that they have to register with the state corporations agency and don’t understand all the rules they must follow – he might have just been making it up to sound snazzy.
The reason corporate form is important is, as discussed above, because it limits the liability of the investors. If you’re a sole proprietor (that is, you personally own a business), or if you’re a member of a traditional partnership (you and a pal personally own the business), and your business fails, the creditors can come after your personal assets. Because legally, you are the one who entered into debt on behalf of the business (such as to buy inventory, lease space, employ staff, etc.), the same way you might have entered into debt to buy a house or go to college.
A corporation, OTOH, is legally a “person” separate from its owners. So if you incorporate, you put money into the business, and if it fails, you’ve lost what you put in, but you have no personal liability to the business’s creditors, because they contracted with the corporation, not with you personally. This is why it is critical that a potential customer, vendor, landlord, etc., must know whether it’s dealing with a sole proprietorship or a corporation – so they know whether their deal is backed by the assets of just the business or with the assets of the business + all your personal assets.
Traditionally, corporations had one major drawback – so-called “double taxation.” (This is a misnomer.) When you’re a sole proprietor, you own the inventory, you sell it, you pocket the cash and you’re done. But with a traditional corporation, there is an additional person. Essentially, you fund the corp., the corp. buys inventory, the corp. sells inventory, then the corp. distributes the profits to you. Since you and the corp. are two different people, you both have to pay taxes – the corp. on the money it makes from doing its business, and then you on the money you receive from the corporation. This additional taxation is the price you pay for liability protection.
However, in the last few decades, efforts have been made to lower the tax burden on small business in an effort to encourage them. The easiest way to do this is to allow them the liability protection that comes with corporate form without having to suffer the “double” taxation. An L.L.C. is currently the most common form, accepted in many states. This is a small corporation which doesn’t suffer from double taxation. There are both state and federal requirements that an LLC must meet, typically including a size limit. “L.L.C.,” which does stand for Limited Liability Corporation is also a misnomer – all corporations offer limited liability; that’s the very point of corporate form. An LLC should actually be called a limited taxation corporation, because that is the benefit it has over traditional corps., but I guess that doesn’t have the same ring to it. 
That’s why I posted above that David Simmons’ definition of a “Ltd.” corporation is the same as our regular Co. or Inc. – it offers limited liability by interposing the existence of an additional “person” between those who fund the business and the debts it enters.
Of course, this whole thing is in a bit of cocked hat know because of the current Administration’s tax changes. The new tax law purports to remove double taxation by making the distributions from businesses non-taxable not just for LLC’s but even for big companies. If such a change becomes permanent there would seem to be no need for LLC’s or any other type of “pass-through” entity. It seems unlikely that these tax changes will persist (I’ve got my fingers crossed) but who knows?
–Cliffy
Of course, there’s also the Ford LTD. Did they really name a car after a type of company?
Extreme nitpick – LLC’s stand for Limited Liability Company, not corporation.
Cliffy is correct in stating that, in the U.S., all of these distinctions are a function of state law and can vary. As a general rule, here are the most common business forms in the U.S.:
Sole Proprietorship – as noted, this is the classic one-man operation. Personal profits and losses are indistinguishable from the profits and losses of the enterprise; income is taxed only at the personal level. Basically, the law makes no distinction between the owner and the business. The means the owner’s personal assets can be seized to satisfy judgments against the enterprise.
Ordinary Partnership – basically a sole propreitorship with more than one owner. Each owner is personally liable for the debts of the enterprise. Income is taxed only at the personal level; the enterprise is a “pass-through” entity that does not pay any tax, and only files an informational return indicating how profits are allocated among the partners.
Governance of partnerships (including LPs and LLPs, discussed below) is largely a matter of contract among the partners, although the law of most states prescribes default provisions in the absense of such an agreement.
Limited Partnership (LP) – ownership is divided among limited partners and general partners. General partners – and there must be at least one general partner – have liability as in an ordinary partnership. Limited partners’ liability is limited to their investment in the enterprise. All partners get pass-through taxation.
The key distinction here is that limited partners cannot take an active role in the day-to-day management of the corporation; they must be, in essence, passive investors. Otherwise they are deemed general partners and lose their limited liability.
Limited Liability Partnership (LLP) – This entity gets pass-through tax treatment. It provides partial limited liability – a partner is not personally liable for the negligence or malfeasance of his co-partners, but is personally liable for the contractual debts and obligations of the enterprise. So if your partner commits malpractice, you don’t share in that liability, but you retain liability on the office space lease.
LLPs must be registered with the state, unlike the other partnership types. They are popular for professional enterprises such as law and accounting firms where the profession’s rules of ethics forbids the use of the corporate form.
Corporations – As noted, total limited liability for shareholders. Double taxation. Corporations also have a statutuorily-prescribed structure that is quite rigid: shareholders elect a board, which elects and oversees officers. Officers are responsible for the day-to-day operation of the company; the board represents the shareholders in periodic “big decisions.” Corporations, of course, have to be registered with the state. (Some states have special rules for so-called “close corporations,” basically very small corporations with few shareholders, that loosens some of these governance requirements).
Limited Liability Companies (LLC) – LLCs are a relatively new animal. They are essentially a merging of partnerships and corporations. Owners of the enterprise are called “members.” Members retain complete limited liability. Pass-through taxation may be elected. LLCs must be registered with the state.
The manner in which an LLC is governed is wholly a matter of contract, defined in the enterprise’s “operating agreement.” This makes LLCs enormously flexible; they can be molded to fit whatever particular needs their founders happen to need.