Comparison of Ltd to LLC

By Stephanie Kurose, J.D.

Comparison of Ltd to LLC

By Stephanie Kurose, J.D.

People might see a business with "LLC" at the end of its name and see a competitor business with a very similar structure with "Ltd" after its name. Both are businesses that formed in their relevant jurisdictions that must present themselves as either LLC or Ltd. There are, however, significant differences.

Man at desk in suit

LLC Structure

People who run businesses might want to organize those businesses so that the assets of the business and the assets of the individual are separate. This means that a liability of the business does not become a liability of the individual who owns the business. To accomplish this, the owners, called members, form a limited liability company (LLC), thereby gaining limited liability. The LLC, in contrast to other business models, is easy to organize and does not require creating a board of directors or holding board meetings.

With respect to this discussion, an LLC is a company that provides its members with certain benefits, notably limited liability for personal assets. The personal assets of the members receive protection from any liability of the LLC.

Ltd Structure

As opposed to an LLC, an Ltd—or limited corporation—is not by itself a business or corporate model. Instead, it is a description of a corporation that has shareholders who have limited liability.

A business that incorporates as an S corporation or C corporation can have "Ltd" after its name. Both an S corporation and a C corporation have shareholders who hold stock in the company, and they provide those shareholders with limited liability—in which the personal assets of shareholders are not subject to corporate liabilities. Because of their status as corporations with limited liability, S and C corporations can use the term "Ltd."

By contrast, LLCs, which are not corporations, cannot end their names with "Ltd." An LLC is a company, not a corporation, because it does not have shareholders. State law determines that "Ltd" is only applicable to corporations.

Ltd in the United Kingdom

In the United Kingdom, "Ltd" has a different meaning. There, the abbreviation indicates a private limited company whose shareholders or members are only liable up to their capital contribution in the event of an insolvency. It provides its members with a flexible structure in that it has relatively little paperwork in its formation, provides limited liability (up to shareholder contribution) for its owners, and has a lower tax levy than other business models.

In addition, succession of the company to another owner is easy. A private limited company does not cease to exist upon the death of its owner; rather, it exists in perpetuity. It can easily pass to an inheritor or be sold to another owner. The U.K. Ltd has many similarities to the U.S. LLC.

The term "LLC" means that the company holding that title formed as an LLC entity under relevant state law. In the United States, the term "Ltd" does not mean that the company has formed as an Ltd; it signifies a corporation with shareholders who have limited liability protection. In the United Kingdom, if the term "Ltd" follows a company name, it does refer to a corporate model.

Both an LLC or Ltd can be beneficial for your business. An LLC is easy to form and provides members with limited liability. An Ltd, whether formed as a C or an S corporation, has more formal requirements but provides limited liability and has shareholders. In the U.K., "Ltd" is merely a reference to a corporate model.

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