Many people tend to think that LLC and LTD are interchangeable terms.
They both refer to a type of company, but there is a distinct difference between the two types of organizations.
If you have been trying to decide between an LLC or an LTD, you will benefit from reading this article to understand better which business structure would be best to meet your needs.
LLC vs Ltd: Key Difference
In short, a Limited Liability Company (LLC) is a business entity that provides the limited liability feature of a corporation without having to adhere to some of the more stringent formalities.
In other words, you get many of the benefits associated with running your company as a corporation.
Still, you do not need to adhere to all of the formalities that other corporations are required to follow.
If you own a Limited Liability Company, you are not responsible for what it owes because you will have limited liability protection.
If the company doesn't pay the mortgage on time, the creditor can't come after you to pay what is owed because you are considered a separate entity.
This means that as long as you have not guaranteed the company's debts, creditors cannot come after your personal assets to cover what is owed by the LLC because you fall under personal liability protection.
Limited Liability Companies differ from other businesses in numerous ways.
One disadvantage of an LLC is that members must pay self-employment taxes on their share of business profits because they are separate entities.
So, if you and your partner own an LLC that makes company profits of $100,000 in one year, as a separate entity, each of you owes self-employment taxes on $50,000 of your earnings.
With an LLC, your level of liability protection depends upon how you structure the business.
Under an LLC operating agreement, members can be held jointly liable if they are not careful with their decision-making process regarding management decisions.
Advantages of an LLC
You can form an LLC which is cheaper than a corporation. It costs about $100 to submit paperwork, and then another few hundred dollars if you decide to hire someone who will set up your business for you.
- Since there are fewer formalities involved in managing an LLC, many people prefer to operate their small business as an LLC because it is easier.
- You can get money from a company without paying taxes if you own a company. You have to wait until you get the money in the form of dividends.
- It is also possible for an owner of multiple LLCs to transfer ownership from one LLC to another without paying taxes on those transfers.
Disadvantages of an LLC
- Because there is less government regulation, it is more difficult to ensure that an LLC will retain its limited liability status if the owner of the business fails to abide by local laws.
- The filing fees involved with setting up an LLC can be costly for some businesses, especially if they are just starting and do not have much revenue coming in initially.
What is an Ltd?
Ltd stands for a limited partnership. A private limited company is entered into by two or more persons who “partner” together in return for a “capital contribution” to the company.
A “general partner” manages and controls operations, while “limited partners” participate in the business activities but do not have a say in the “management” of the company.
“Limited partners” are subject to “limited liability,” meaning that their “financial contribution” is limited to the amount they “contributed” to the partnership.
Advantages of an Ltd
- An Ltd needs to file an annual report with the state. In some states, this can be done without any cost.
- The fees for a limited partnership are less expensive than for a corporation.
- You can use a limited partnership instead of a corporation if you don't want double taxation. It is less expensive and less complicated.
Disadvantages of an Ltd
- You are required to file more reports with the state in which you live if your business is operating as a Limited Partnership.
- You are required to file more reports with the federal government if your business is operating as a Limited Partnership.
- An LLC in most states can have "members,” while an Ltd cannot have "members" in most states because it is illegal for an LLC to have only one owner.
- Operating your business as an Ltd can lead to double taxation.
LLC vs Ltd
If you are familiar with LLCs, understanding how a Limited Partnership (LP) works will be very easy because they both have similar properties; however, they are two separate business entities with their own unique sets of advantages and disadvantages:
- LLCs have fewer formalities than a corporation, while they have more reporting requirements to the state and federal governments.
- The costs of setting up an LLC are higher than those for Ltd.
- Operating as an LLC can provide tax advantages because owners do not pay taxes on initial profits made by the company until they receive dividends from the company.
- Owners of an Ltd do not pay taxes on initial profits until the LLC is liquidated and receives distributions from it.
- An LLC has less government regulation than a corporation.
- Ltd has “members” while an LLC cannot have “members.”
- Operating as an LLC can lead to double taxation, and “limited partners” in a Limited Partnership do not pay taxes on the full amount that the limited partnership “makes” because the “limited partners” are “subject to limited liability.”
Read More: LLC Pros and Cons
Which One Suits Me Best?
The best way to go for you depends on how big your business is, your goals for the future of your business, whether or not you want members in your company, and if you would like to incorporate ownership rights into your company.
If you're small, just started, or on the verge of bankruptcy, an LLC is typically a good fit for your company.
You will also have ‘more flexibility in terms of ownership and tax issues because you get to choose whether you will be taxed as a sole proprietor, a partnership, an S Corporation, or a C Corporation.
However, if you are willing to spend a little more money setting up your business, Ltd might be a better choice.
LTD is preferred when your company is large, but few people work for it because it’s easier to manage a large company with a few key individuals than a large company with many employees.
FAQs
What Is Better, Ltd or LLC?
Limited Partnerships are typically better suited for businesses that have several members who can share in the responsibilities of managing the company.
What Type of Business Is LLC or Ltd Best For?
In most states, LLCs can have members, while Ltd cannot have members.
This is because an LLC is at liberty to decide how many owners it will have and whether it will be responsible for the company’s debts.
Is Ltd Private or Public?
Limited Partnerships are private companies.
Can an Ltd Be an S Corporation?
No, a Limited Partnership cannot be an S corporation. If you want your business to be an S corporation, you have to register it as a Corporation instead of a Limited Partnership.
What's the Difference Between an LLC and an Ltd?
There are a few key things to remember when deciding between an LLC and Ltd: an LLC is less formal than a corporation and provides tax advantages, while Ltd has more reporting requirements and "members."
Additionally, operating as an LLC can lead to double taxation. Ultimately, the choice between the two entities depends on your specific business goals and needs.
If this type of company structure is what you're searching for, be sure to read our article on how to open an LLC.
