What is a limited company?

• A. A company owned by a group of employees
• B. A limited company is a company that establishes the business as a legal entity separate from a person as an individual
• C. A limited liability partnership
• D. A sole proprietorship

Answer: (B)

A limited company is created as a separate legal entity from the people who own or run it. This means the business itself can own assets, enter into contracts, sue, and be sued in its own name, just like a person would. The people who own it (the shareholders) have limited liability, meaning they are responsible only for the amount they invested in the company. Their personal assets are typically protected from the company’s debts and obligations, except in cases like personal guarantees or illegal conduct.

This differs from a sole proprietorship, where there is no separate legal entity—the owner and business are one and the same, so personal liability extends to business debts. It’s also distinct from a limited liability partnership, which is a different structure designed for professional partnerships with its own rules. And it isn’t simply a company owned by employees; while employee ownership is possible, a limited company is defined by its separate legal personality and limited liability status.