Decryption Ltd: concept, application

Ltd is a legal form of business, 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 generally exist for.

Why are legal forms necessary?

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 tall building or a highway alone. Since ancient times, people have learned to unite to achieve common goals. The common goals of several people can be making a profit or some positive changes in society, for example, improving the condition of the poor. Often, in order to achieve common goals, it is necessary to add or create expensive property in the course of cooperation (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 of this, 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 manage property received as a result of joint activities?

• What to do with profit or loss resulting from joint activities?

• How to pay taxes if the state in whose territory the joint activity is conducted requires this?

The law in force in ancient Rome did not provide for answers to most of these questions. With the development of human civilization and the growing importance of associations of independent people to solve a variety of 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.

Legal Forms in English Law

English law is the basis of legal systems in the UK and in the 15 states of the Royal Commonwealth - countries in which, by constitution, the Queen of Great Britain is the head. 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, legal forms are divided into two types: unincorporated and corporate. An example of an unincorporated legal form is an individual entrepreneur (Sole Trader), just as in Russia, an individual entrepreneur is responsible for the results of his activities (for his obligations) with all his property. For example, for a debt of 10 thousand pounds, an individual entrepreneur may lose his home, worth 50 thousand pounds. The house will be sold, debt is covered from the income from the sale, the costs of the sale are compensated, and the balance is returned to the entrepreneur.

This situation severely limits both the entrepreneur, who is not interested in putting his family at risk, and his counterparties, who may not want to make a deal with an individual, knowing about the possible grave 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 partnership. A partnership cannot own common property, which means that it can take loans against it. Partnership, on the other hand, has an important advantage over other forms of association. In the case of making a profit, only partnership members are taxed as individuals, which means there is no double taxation when the tax on the profits of the organization is first levied, and then the tax on the income of its founders.

Corporate forms of organization allow its founders to fully enter into legal relations as a single person who can have property, be responsible for their obligations and pay taxes. Similar entities 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 any norms. For example, the founders may be forced to pay the debt of the organization, but only if the organization’s property is insufficient and if the founders, through their action or their inaction, contributed to the emergence of a problem situation. This situation stimulates entrepreneurship, including risky business projects, which become the engine of progress.

Ltd is a private limited company

In English law, there is a legal form Limited Company (limited liability company). The expression "limited liability" has a strict interpretation in the law and allows two types:

• Responsibility of the founders in the framework of their investments in the company - officially registered constituent contributions. For example, as a result of an unsuccessful transaction, the company was owed 100 thousand pounds. The property of the company was estimated at 50 thousand pounds, and 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 1, 000 pounds. The houses, cars and other personal property of the founders will not be enforced, despite the fact that 48 thousand pounds of debt will not be repaid.

• Responsibility of the founders within the framework of their guarantee obligations. Example: in the case of a debt of 100 thousand, it could turn out that when the company was established, one of its co-owners signed a commitment to readiness, in case of problems, to pay off the debt in the amount of 30 thousand, and the second - in the amount of 5 thousand. These amounts, respectively, will be collected from them on account of the debt.

A limited liability company is not responsible for the personal obligations of its founders. If one of the founders took the car on credit and was unable to pay it, then debt collection cannot be imposed on the company, even if it is the main owner in it. Strictly speaking, the share of the founder in the company may be set aside in repaying the debt. They will sell it, 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 may be formed from contributions of founders, profits, loans and property acquired in the course of business. At the same time, the liability of the founders for the obligations of the company remains at the level of the foundation fee.

Organizations in the form of a Limited Company in the UK can exist in one of two forms regarding the possibility of transferring shares to new owners. In Ltd - private limited companies - the founders can offer their shares to other persons or organizations. Such a transaction is governed by an agreement between the founders, as prescribed in the Articles of Association and the memorandum of incorporation.

Public limited companies (the designation of such a company is plc, has the translation: public limited company) offer part of their shares (shares in the company) to an unlimited number of people 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 accessible media and establishes more stringent procedures for the sale of shares. As a rule, the company takes the form of PLC as a result of the development of the initially established Ltd after a complex and expensive procedure for admission to the open stock market.

Ltd outside the UK and Commonwealth countries

In the Russian Federation, analogues of Ltd are limited liability companies (LLC) and joint stock companies (JSC). PLC analogues in Russia are public joint-stock companies (PJSC). In the legislation of the Russian Federation and the UK there are some differences in the requirements for LLC and Ltd, respectively, however, they are not fundamental. Moreover, there may be some differences with respect to Ltd in the laws of different countries of the English crown.

In the USA, the analogue of Ltd is the public law form of "corporation". In the name of an organization of this form, the presence of the abbreviations inc. (from the word incorporated) or corp. (abbreviation for corporation). The difference between the two is that Corp. usually indicates that the company was created as a result of the merger of several companies. 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. The laws of the state of Delaware, for example, spell out the form of a private company Ltd. Also in the United States, a form of companies, designated LLC. The abbreviation llc means limited liability company. This is also a private limited liability company, but, unlike Ltd, it does not pay income taxes. It is believed that in such a company all the profits go to the founders, and they pay their taxes from it. In many cases, this form is 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).