It is easy to get wired up about searching for the differences between LTD and LLC and with the similarities in their names one ends up even more bewildered. However, LTD and LLC are as much different as their name sounds similar.
LTD vs LLC
The main difference between the LTD and LLC is that LTDs pay taxes as a separate entity from its owners whereas LLC’s tax is paid through their member’s tax invoice.
LTD is an abbreviation of Limited denoting limited partnership whereas LLC stands for Limited liability Company that incorporates the benefits of both partnerships and companies.
Another key difference is that the shareholders of a LTD partnership are liable to pay the company’s debt limited to what they have invested whereas in LLC, protection from liabilities depends on the applicable jurisdiction.
Besides, in a LTD, there are limits to the number of shareholders who can invest where as in LLC there can be a great number of members holding shares of the company. In LTDs, mostly only co-owners are given power.
Comparison Table Between LTD and LLC
| Parameter of Comparison | LTD | LLC |
|---|---|---|
| Full form and structure | Limited denoting limited partnership, having general and limited partners | Limited liability Company, protects shareholders from debts and liabilities |
| Shareholders | Only co-owners have shares | Can be one or many |
| Shareholders are called | Partners in the company, mostly co-founders | Members of the company, need not be founders |
| Liability protection | Partners are liable to company debt limited to their investment | Depends on the state laws and the applicable jurisdiction |
| Taxation | Company pays tax as a separate entity from the gains and profits made | Company pays no tax, members are taxed from their individual invoice |
What is LTD?
LTD stands for Limited or limited partnership and its laws are regulated under the state laws. Shareholders of LTD are called partners since there are certain limitations to who can be a shareholder.
Limited partnerships have two kinds of partners, one who is a limited partner and the other who is a general partner. A general partner makes all the business decisions and the limited partner is a silent investor.
In a limited partnership, the shareholder is liable to a company’s debt only as much as he invests and is protected from losing extra on the company’s insolvency. However, when a limited partner involves in company decisions making, he risks losing more.
LTD is an extension that is used at the end of company names to denote the type of company it is and the laws that regulate its structure. LTD is however, never singularly used on its own.
LTD companies pay taxes from their profits as individual entities separate from their owners. The share holders do not pay any separate taxes. These shareholder benefits are received only by limited people, essentially given only to the co-founders.
What is LLC?
LLC stands for Limited Liability Company and provides some or all the protection from the liabilities of dept to its members. LLCs can attract investors by proving shares, since they are eligible to have a number of shareholders.
A shareholder of an LLC is known as a member and unlike LTD all these members enjoy equal protection from debts and liabilities of the company. An LLC member can also take part in the decision making of the company without risking any assets.
LLC companies have a number of options to choose from when it comes to taxing, such as a sole proprietor, a partnership, an S corporation or a C corporation. The company, however, do not pay taxes as a separate entity.
LLC is also regulated by state laws and are mostly suitable for smaller companies. There is also another type of LLC called the Series LLC which enables the investor to protect their primary assets by designating them to smaller entities.
However, the laws of forming an LLC vary from state to state and require the detailed documentation of organization and its various laws to be submitted to the state. This article includes rights, powers, duties, liabilities, name and addresses of the LLC’s members, the name of the LLC’s registered agent, etc.
Main Differences Between LTD and LLC
- The main difference between the LTD and LLC is that LTDs pay taxes as a separate entity from its owners whereas LLC’s of options to choose from such as a sole proprietor, a partnership, an S corporation or a C corporation.
- Another key difference is that the shareholders of a LTD partnership are liable to pay the company’s debt limited to what they have invested whereas in LLC, all members have protection from debt and liabilities.
- Shareholders of LTD are called partners since there are certain limitations to who can be a shareholder whereas LLCs can attract investors by proving shares, since they are eligible to have a number of shareholders.
- LTD is an abbreviation of Limited or limited partnership on the other hand LLC stands for Limited Liability Company that incorporates the benefits of both partnerships and companies.
- In limited partnerships when a limited partner involves in company decisions making, he risks losing more whereas an LLC member can also take part in the decision making of the company without risking any assets.
Conclusion
Although both LTD and LLC are both regulated by state laws, they have monumental differences in their structure that make them uniquely advantageous to small and large businesses alike.
LTD is an abbreviation of Limited or limited partnership the shareholder is liable to a company’s debt only as much as he invests on the other hand LLC stands for Limited Liability Company that incorporates the benefits of both partnerships and companies.
The main difference between the LTD and LLC is that LTDs pay taxes as a separate entity from its owners whereas LLC’s of options to choose from such as a sole proprietor, as a partnership, an S corporation or a C corporation
Both LTD and LLC allow its investors to take advantage of the flow-through taxation and depending on the company requirement, both these should be carefully studied to ensure correct application.