Ltd vs. LLC
In business, one often encounters the terms ‘Ltd’ or ‘LLC’ attached to company names. But what do they really mean? And how are they significant to the nature of an enterprise?
Essentially, these two are types of companies. The Ltd, which stands for “private limited company”, has shareholders with limited liability, and its shares may not be offered to the general public. The LLC, or limited liability company, also known as “with limited liability” (WLL), provides limited liability to its owners and follows pass-through income taxation.
The two may seem very confusing due of the limitedness they put emphasis on. But despite the slight similarity in name, they are decidedly different from one another and render their own set of advantages and disadvantages.
Three main factors distinguish one type from the other; the liability owners have in the company’s transgression, the way the company is taxed, and the number of shareholders allowed.
An Ltd is a type of company widely incorporated under the many commonwealth countries. As far as liability is concerned, shareholder responsibility for company debt is limited to the amount invested in the company. A shareholder’s personal assets are protected in the event of the company’s insolvency, but any money invested in the company will be lost. The company pays its own tax on profits and gains as a separate entity from its owners and shareholders. As mentioned before, its shares may be lawfully offered only to a select few; especially co-founders. Theoretically, Limited Companies are formed with both an authorized share capital (the total number of shares existing in the company multiplied by the nominal value of each share) and an issued share capital (the total number of all issued shares multiplied by the nominal value of each). Furthermore, unissued shares can be issued at any time by the directors subject to prior authorization by the shareholders. Shares in a private company are usually transferred by means of private agreement between the seller and buyer.
Limited liability in LCC means that the owners, called “members,” are protected from some or all liability for acts and debts of the LLC, depending on shield laws. It is a flexible type of business that combines some characteristics of partnership and corporate structures. Although considered a business entity, it is a type of unincorporated association and is not a corporation. It shares some characteristics with corporations in terms of limited liability, and with partnerships in terms of the availability of pass-through income taxation. Often, it is well suited for companies with a single owner and also preferred by small business entities. It has the advantage of limited personal liability and a choice of how the business will be taxed. An LCC can be taxed as a sole proprietor, partnership, S corporation or C corporation. Partners can choose for the LLC to be taxed as a separate entity or as a partnership-like entity in which profits are passed through to partners and taxed on their personal income tax returns. Unlike an Ltd, an LLC has a flexible ownership structure; this means it can operate with as little as one owner or multiple members coming both from internal and public circles.
Summary
1) In an Ltd, a shareholder’s liability is limited to the amount they’ve invested in the company. On the other hand, in an LLC, members are protected from some or all liability, depending on the applicable jurisdiction.
2) In an Ltd, shares cannot be sold to the general public. Conversely, an LLC can involve members ranging from one to multiple individuals.
3) An Ltd is taxed as a separate entity, while an LCC can be taxed as a partnership, S corporation, or C corporation.