Difference Between Ltd and LLC
Ltd vs LLC
In business, one would often see the terms ‘Ltd’ or ‘LLC’ attached to company names. But what are these really? 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. They may sound very confusing because of the limitedness they emphasize on. But despite the slight similarity in name, they are very much different from one another and render their own set of advantages and disadvantages. Three main provisions distinguish one type from the other. One is the liability owners have in the company’s transgression, another is how they are taxed, and lastly the number of shareholders allowed.
An Ltd is a type of company widely incorporated under the many Commonwealth countries. In as much as liability is concerned, shareholder responsibility for company debt is limited to the amount he/she has invested in the company. A shareholder’s personal assets are protected in the event of the company’s insolvency, but 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 already mentioned, 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, un-issued 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 private agreement between the seller and the 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 as a business entity, it is a type of unincorporated association and is not a corporation. It shares some characteristics with a corporation in terms of limited liability, and with a partnership 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 practically 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 just one owner or multiple members coming both from internal and public circles.
1) In an Ltd, a shareholder’s liability is limited to the amount he/she 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) An Ltd shares can’t 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.
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