The terms Ltd and LLP are both given to firms with limited liability, with different business structures; one is a limited partnership and the other being a private limited company. Ltd companies and LLPs both have a great advantage in that their liability is limited to the amount of funds that were invested or contributed, and they do not have to pay for other losses by disposing personal assets. Ltd companies and LLPs are quite different to one another, and the following article clearly explains each term and highlights how they are similar and different.
Ltd
Ltd is generally used for a company that has limited liability. Further to this, companies with Ltd in their title are privately held companies. A privately held company is owned by a few family members of close individuals and shares are held among those individuals and cannot be offered to the public. Shareholders of the firm will be responsible only up to the amount that they invested in the firm and cannot be held responsible for any losses beyond that. Shareholder’s personal assets and funds cannot be used in the event of insolvency and is, therefore, a safer investment. The company will act as a separate legal entity and will pay tax separately from its shareholders. Ltd companies are formed with an issued share capital and an authorized share capital. Shares that are not issued can be issued later on; however, approval of all shareholders is required for this. Such approval is also required when shares held by shareholders are being sold.
LLP
LLP stands for limited liability partnership and is a form of limited liability structure formed as a partnership. In a LLP, all partners have limited liability. LLPs are considered to be a new mechanism under which partners do not have to pledge their personal assets against any losses, and do not have to pay for another partner’s losses, which is not the case in traditional partnerships. The LLP will act as a separate entity and will be liable up to the total sum of its assets held. LLPs are formed by two or more partners with the aim of making a profit, and cannot be used for nonprofit operations. LLPs are generally formed among accountants, startups, professionals, etc. who wish to limit the extent of their personal liabilities.
Ltd vs LLP
The main difference between LLP and Ltd companies are that the LLP has the kind of freedom and flexibility enjoyed by traditional partnerships and are taxed in the same manner as partnerships. The other major difference is that in an Ltd company shares can be sold to shareholder (usually founders), whereas there is no shareholder in a LLP. The owners of an LLP are instead called partners. However, there are a number of close similarities between a LLP and Ltd company. LLPs have the opportunity to enter into a business contract and hold assets and properties in much the same as an Ltd company. Another similarity is that LLPs much like Ltd companies need to maintain annual accounts.
Summary:
Difference Between Ltd and LLP
• Ltd companies and LLPs both have a great advantage in that their liability is limited to the amount of funds that were invested or contributed, and they do not have to pay for other losses by disposing personal assets.
• LLP stands for limited liability partnership and is a form of limited liability structure formed as a partnership.
• Ltd is generally used for a company that has limited liability, and companies with Ltd in their title are privately held companies.
• The main difference between LLP and Ltd companies are that the LLP has the kind of freedom and flexibility enjoyed by traditional partnerships and are taxed in the same manner as partnerships.
• The other major difference is that in an Ltd company shares can be sold to shareholder (usually founders), whereas there is no shareholder in a LLP. The owners of an LLP are instead called partners.