Comparison of LTD to LLC

By Tom Streissguth

LLC and Ltd are two common abbreviations used with business names. The abbreviation means that the company is licensed and registered to do business in the state -- or country, in the case of Ltd. -- where it operates.

LLC

A limited liability company is organized according to the state laws where it is formed and operated. The owners of the company are known as members. The net income of the company is passed through as personal, not business, income, and is declared to the Internal Revenue Service on personal income tax forms. There is no business or corporate income tax at the federal level, although some states tax LLCs as corporations or partnerships, and not as individual income.

LLC Member Protection

LLC members are protected from personal responsibility for the debts of the company, and their risk in the business is limited to the amount of money they originally invested. Although the LLC can be sued for damages or debt, the members are protected from personal liability for any judgment entered by a court against the LLC. This affords a business more legal protection than is possible with a sole proprietorship.

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Ltd.

The abbreviation "Ltd." stands for "limited," and a company carrying this abbreviation has the same limited liability feature as an LLC. Partners and owners in the company are protected from personal responsibility for debts and lawsuits. Ltd. is a descriptor, not a specific business entity, in the United States. A "C" or "S" corporation, for example, may carry "Ltd." at the end of its name. The Ltd. abbreviation as a legal business entity is common in the European Union, where laws governing business formation are more specific with regard to the number of shareholders, how dividends are paid and taxed, and other matters.

Taxes and Shareholding

Unlike LLCs, Ltd. companies, when operating as "C" corporations, are taxed as separate entities on their net income at the prevailing business tax rate. The laws governing such companies in Europe restrict who may be a shareholder, and shares are traded privately, rather than through a public stock exchange. LLCs do not issue shares per se, either publicly or privately, although they can use operating agreements that spell out how the income from the business will be divided among members.

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A Comparison of an LLC, Sole Proprietor, S Corp, & C Corp
 

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Comparison: LP and LLP

When forming a new business, it is important to select an appropriate business structure. You may consider a number of factors, such as the length of the business venture, the nature of the business and the level of involvement by the investors. Partnerships are a common option because they are relatively simple to set up and allow for a variety of management structures. A partnership may be formed as a general partnership, limited partnership or limited liability partnership.

Tax Differences of LLCs & PCs

A limited liability company is a company, typically with a small number of owners, known as members, that enjoys the same limited liability benefits as a corporation. All states now allow one-member LLCs; some states allow professionals to form professional limited liability companies, or PLLCs. A professional corporation, or PC is a special type of corporation designed for professionals such as lawyers and accountants. LLCs and PCs are taxed quite differently.

How Do I Set Up an LLC in Utah?

A limited liability company is a business entity that protects its owners, who are known as members, from liability for financial obligations as well as most forms of litigation. The LLC also provides benefits in the form of simplified taxation. By default, LLCs are not taxed as separate entities by the federal government; members declare their net incomes from the business on their personal income tax returns. However, members can elect to have their LLC taxed as a corporation. Setting up a limited liability company is a relatively easy matter in most states including Utah.

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