There is no doubt that limited companies (or private limited companies) are some of the most common business structures. You can differentiate a business owned by this structure by adding the words “Limited” or “Ltd” to the end of the company name.
Differentiation between LLC and Private Limited Company
The advantages and disadvantages of a private limited company and a limited liability company are quite different. If you are deciding what the differences are between the two, you should also think about their advantages and disadvantages. An example of this kind of business structure is a registered private limited company. The title is usually denoted by the designation “Limited” or “Ltd” at the end of its name.
There are hybrid business structures that operate in a similar manner to corporations and partnerships, LLCs being one such business structure. As a result of the limited liability benefits of a partnership, it is able to function similar to a corporation; however, because of the greater flexibility and tax benefits, it is working similar to a corporation.
Legally, LLCs must go through the legal system as separate legal entities that are independent of their owners (or members). As it pertains to tax rules, LLC profits and losses are transferred to the member when the business is formed. This information is then reported on that member’s personal tax return (Schedule C – Form 1040). Sole proprietorships would be similar to this in this regard.
Private limited companies are similar to LLCs (Limited Liability Companies) in that they protect the owners against any personal liability which may result from the company’s debts. This is an opportunity to protect the owner’s personal assets from being taken by the company in the event of a legal dispute.
In contrast to the tax treatment of a limited liability company, a private limited company is treated as a separate legal entity from the shareholders or other members. As a result, what this means is that the company pays its own taxes on its profits. Another difference between the private limited company and the public limited company is that a private limited company has both the authorized capital and the issued capital when it is formed.
For more specific information, the authorized share capital is the multiplier of the nominal value of each share multiplied by the number of existing shares (that were not issued). Please remember that if there were existing shares that have not been issued, those could be issued at any time if shareholders authorize the issuance. It is not possible to offer shares to the public in a private limited company, and they are only available for purchase on a private basis.
Advantages of a Private Limited Company
An operator of a limited company has several advantages over the operator of a general partnership or limited company.
It is therefore important to note that private limited companies are separate legal entities from their owners, which allows for protection from personal liability in the event that an action is brought against the company in the future.
- You will be able to increase your credibility when conducting business with a private limited company, as these companies are registered and regulated, therefore providing a more positive reputation to your potential clients and customers
In the case of a private limited company it would be easier to obtain financing from banks
- Companies can raise capital by privately issuing shares in order to raise capital
Dividends can be taxed at a lower rate than the income earned from the business, and therefore, there are other tax benefits to this method as well
As you may be aware, forming a private limited company has many disadvantages associated with it
- There are a few disadvantages incurred by operating a private limited company. Among them are the following:
- As a result, there are fewer privacy concerns regarding the company information on the official website of the company
- As a limited company, the cost to hire an accountant is higher compared to a limited liability company (LLC).
- A private limited company is required to file its annual accounts and returns with the Companies House website; if they fail to submit this information, they are subject to a fine or their company will be struck off the register.
LLCs have several advantages
Operating an LLC has several advantages, including flexibility, tax benefits, and ease of formation. In addition, it is a relatively simple way to establish your business.
The business debts and obligations of the LLC are limited, as previously mentioned, which reduces the liability of the business. Therefore, assets of a member are not affected by this type of protection, i.e. home, car or bank account.
LLCs are recognized by all states in the country, and even foreign citizens are allowed to run LLCs within the United States. Additionally, unlike corporations LLCs are not liable for taxes on earnings or losses. LLCs are either required to hold annual general meetings, or to keep minutes of meetings on file. Self-managed corporations enjoy the benefits of holding regular meetings and delegating on special occasions.
Another benefit is the significant flexibility that an LLC offers when it comes to running the business. It’s for this reason that as long as all LLC members are in agreement, individual members can be assigned specific roles within the LLC. The members of the LLC can also each own a disproportionate share of the LLC, as long as the operating agreement sets forth such a percentage and it is agreed by all members.
A company that is an LLC has several disadvantages
- However, although there are many advantages to operating a limited liability company, there are also a couple of disadvantages, such as the following:
- In contrast to limited liability companies, a limited partnership can not issue shares of stock to partners of the partnership
- There are some states that do not permit the formation of single-member LLCs, rather requiring that two or more of the members form an LLC
- If a member leaves a limited liability company, the company will dissolve automatically under many states
- As noted above, LLC owners are not allowed to split the company profits in order to reduce their taxes