"Limited by shares" means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder's personal assets are therefore protected in the event of the company's insolvency, but money invested in the company will be lost.

The following relates to English law. Whilst the concepts of 'limited liability, 'authorised' and 'issued' shares are common to both the UK and US there are some differences as regards the legal framework.
Click here for an overview of US laws regarding corporation and limited liability companies.

A limited company may be "private" or "public". A private limited company's disclosure requirements are lighter, but for this reason its shares may not be offered to the general public (and therefore cannot be traded on a public stock exchange). This is the major difference between a private limited company and a public limited company. Most companies, particularly small companies, are private.
In the UK the Companies Act allows one or more persons to form a company for any lawful purpose. In the Republic of Ireland, a private limited company may have a maximum of fifty shareholders.

Limited Companies are formed with both an authorised share capital and an issued share capital. Issued shares represent the number of those authorised that a limited company has put in to circulation. The authorised share capital is the total number of shares existing in the company multiplied by the nominal value of each share. Not all the authorised shares may have been issued. The issued share capital is the total number of shares existing in the company multiplied by the nominal value of each share. A company incorporated in England and Wales can be created with any number of shares of any value, in any currency. For example, there may be 10,000 shares with a nominal value of 1p, or 100 shares each of £ 1. In each case the share capital would be £ 100.
Unissued shares can be issued at any time by the directors using a Form 123, subject to prior authorisation by the shareholders.

Shares in a private company are usually transferred by private agreement between the seller and the buyer, as shares in a private company may not by law be offered to the general public. A stock transfer form is required to register the transfer with the company. The articles of association of private companies often place restrictions on the transfer of shares.
The percentage of issued shares held by a person determines the percentage of the company he or she controls. If for example the incorporated business has a total of 1,000 shares in circulation and an individual person has 150 of these. That person is then said to have 15% company ownership (150/1,000).
The number of authorised shares in the company might be 1,000 or even 100,000, but this is irrelevant when determining a person's percentage holding and ownership. Only issued shares are counted.

It is possible for a company to have more than one class of share. In this case, the issued share capital of each of the different classes would need to be considered. Details of holders of issued shares are kept in the company's register of members.
When a UK limited company is set-up, it need not allocate the entire amount of its authorised shares. If this is done, then the allotment of further shares requires an increase in the company's authorised share capital and may delay the distribution.
For example, should four individuals register a company together and wish to have equal shares, allocating one share each to these four people is the same (in terms of the control of the company) as allocating 250 shares to each person. Provided that they are the only shareholders, in both cases they will each control 25% of the UK limited company.
Assume that the number of authorised shares is 1,000, they could have issued just four shares and still had (1,000 less 4) 996 units available to allocate to fifth, sixth, seventh, up to 996th person who subsequently joins them. By having issued 250 shares to each individual, the full quota of the authorised units would have been distributed and none would remain and be available to the new person.
They could of course transfer 50 shares each to the individual. This however involves four transactions whereas the simple issuing of spare authorised shares would only involve one process.

The Companies Act together with the memorandum and articles of association will determine the procedures to be followed when issuing new shares. For example, they will state whether pre-emption rights exist and what percentage of existing shareholders must agree to the new issue. An appropriate value for the shares will need to be determined. The calculation to be used might again be contained within the company's constitution.
Form 88(2) is used to facilitate the issuing of additional new company shares. The completed document is usually sent to Companies House at the time of the submission of the annual return. Stamp duty may be payable by the purchaser on the shares they receive.
The company secretary would be responsible for amending the statutory books. The records would reflect the share issue in the register of members and the director's interests section, if the equity was in fact issued to a company director.