LTD vs LLC: What’s the Difference?

    by Benjamin Aronson
Updated November 22, 2021

Have you ever noticed a competitor of yours or simply a company of interest ending with the term LLC or LTD?

Well, there is absolutely a reason for that and in this post, we are going to compare LTD vs LLC so that you’ll know the difference and which structure is essentially better.

Difference Between LLC and LTD

Both an LTD and LLC are business entities that offer personal liability protection to business owners. The biggest similarity between the two is the fact that they are both separate legal entities from their owners.

Although there are similarities between an LTD and LLC, there are also major differences:

  1. LTD is a form of business structure available in countries including the U.K., Ireland, and Canada.
  2. LLC is a company structure in the U.S.
  3. Owners of an LLC are called members and in an LTD they are commonly known as shareholders.
  4. Within an LTD taxes are paid as a separate entity, disconnected from the shareholders.
  5. An LLC can be taxed as a C or S corporation, partnership, or sole proprietor which gives the members the decision on how the company will be taxed.

There are a few additional minor differences between LTD’s and LLC’s. At the end of the day, if you’re planning on establishing a business in the United Kingdom, Ireland, or Canada, then an LTD is the company that you should establish. And if you decide to conquer the U.S market, then let’s form an LLC and incorporate your business!

What is an LTD?

An LTD is a business structure that is offered in the United Kingdom, Ireland, and Canada. Each country has a slightly different ruling. At the end of the day, an LTD business is a limited company that acts as its own legal entity.

In the United Kingdom, an LTD protects the personal assets of the shareholders, also known as the owners. The shareholders are only liable for up to the money invested within the company. An LTD pays its own tax on sales and profits as a separate entity from its owners/shareholders.

Both LTDs and LLCs provide limited liability to their owners.

What Does LTD Stand For?

The abbreviation of LTD stands for “limited” and usually appears after a company name, for example, Unilever, LTD. In a limited company, shareholders are liable for up to the amount of money initially invested upon the establishment of the business.

This is the reason why limited liability is directly connected to LTD companies.

What is an LLC?

An LLC is one of the most common business structures in the United States. This is such a common structure because it offers limited liability to owners, protects personal assets from the responsibility of the business debts, and provides tax benefits.

The first LLC (Limited Liability Company) was established in 1977, and today they make up approximability 75% of the US business formations. LLCs combine the specific characteristics of a corporation, partnership, and sole proprietorship.

An LLC is similar to a corporation in relation to the limited liability that it provides, yet easy to file, and offers pass-through taxation like a partnership. An LLC is an optimal mix between those company structures.

Like a corporation and partnership, an LLC must get a Tax ID known as an Employee Identification Number which is approved by the IRS. Regulation and laws vary based on the state you form your LLC.

What Does LLC Stand For?

An LLC stands for Limited Liability Company, and that’s exactly what an LLC is. A company formation that offers limited liability to the owners, which are known as members. There are four main business structures in the United States:

  1. Sole proprietor
  2. Partnership
  3. LLC
  4. Corporation – C Corporation/S Corporation

LLC’s can be structured as a large company with many members, a limited partnership between two individuals or it can be member-managed by a sole member.

What is an LLC Used For?

You can set up a limited liability company for whatever you want, but there are two main reasons why LLCs are established:

  1. Forming a company as a separate entity for tax benefits and limited liability purposes. Business owners do this in order to protect themselves from the financial and legal obligations of the company. The fact that you are able to create a company that essentially holds all of the responsibilities incentives businessmen and women to get an idea going and stimulate the economy.
  2. Setting up a shell company to house assets. Putting real estate or other goods such as a machine, boat or plane is a common practice. This is most often set up to minimize liability protection. The cost of setting up an LLC is relatively low for the benefits that it offers which makes it an easy decision.

What does PC stand for in Business?

PC stands for Professional Corporations. A PC isn’t for every business owner because not every business owner offers a professional service.

Professional Corporations are typically run by lawyers, doctors, and architects. There are usually higher regulations toward these types of companies and they are not allowed to branch out to additional services that aren’t connected to the reason why they incorporated.

What Does Entity Mean?

An entity is an organization created by a single owner, limited partners, or even a corporation in order to conduct a type of business. However the business entity if formed directly affects the structure of the organization and how the member’s shareholders, general partners, or owners are taxed.

FAQ

What’s the Difference Between LLC and INC?

LLCs and INC are both forms of organizations, that there are structured very differently.

An LLC stands for a Limited Liability Company, while INC or CORP explain that the business is a corporate entity. Both structures protect the owners, providing personal protection on assets. The main difference between these two structures has to do with tax and compliance differences.

What is better Ltd or LLC?

An LTD and LLC are both very similar in the type of structure and limited liability that they provide owners. There isn’t really a “better entity,” but if you’re doing business in the UK then it doesn’t really make sense to form an LLC.

Same thing if you’re doing business in Texas, it wouldn’t make any sense to form an LTD in the UK. Simply form a business in the country and state that the business operations are taking place.

Sources:

  1. (IRS) Limited Liability Company
  2. (IRS) LLC Filing as a Corporation or Partnership
  3. (Legislation.gov.uk) Companies Act
  4. (Gov.UK) Running a Limited Company
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