When starting a business, choosing the right structure is crucial. Two popular options are limited (Ltd) companies and limited liability companies (LLC). Understanding the differences can help you decide which is best suited to your business goals and legal obligations. In this guide, we'll explore the key features, formation processes, pros and cons, and more.
What is a limited company (Ltd)?
A limited company (Ltd) is a common business structure in the UK, offering legal separation between the business and its owners. It protects shareholders with limited liability, meaning their personal finances are shielded from business debts beyond their shareholdings.
An LTD is usually run by its directors and owned separately by its shareholders (known as members). However, one person can form and also run a company, acting as both the main shareholder and director. The cost of starting an LTD varies, though you can register online with Companies House for around £50.
Key features
- Separate legal identity: The company exists independently from its shareholders and directors.
- Limited liability: Shareholders are only responsible for company debts up to the value of their shares.
- Ownership through shares: Profit-sharing depends on the number of shares held by each shareholder.
- Company directors: Companies must have at least one director responsible for running the company.
- Required filings: Annual accounts and confirmation statements must be submitted to Companies House.
How do you form an Ltd?
- Choose a name: Ensure the name is unique and complies with UK naming regulations.
- Register with Companies House: The incorporation process involves submitting a memorandum and articles of association.
- Appoint directors and shareholders: At least one director must be named.
- Provide a registered office address: This must be a UK address where official correspondence will be sent.
- Receive a certificate of incorporation: Once approved, the certificate of incorporation confirms your company is legally established.
Pros and cons
| Pros ✅ | Cons ❌ |
| Limited liability offers financial protection for owners | Increased administrative responsibilities, including annual filings and accounting records |
| Potential tax advantages through corporation tax rates rather than income tax | Certain details, like company directors and shareholders, are publicly available |
| Operating as an Ltd often appears more professional |
What is a limited liability company (LLC)?
The LLC structure is popular in countries like the United States but doesn't directly exist in the UK legal framework. However, LLCs are often compared with UK limited companies because they share similar traits, such as limited liability for members. In jurisdictions where LLCs are recognised, they blend characteristics of partnerships and corporations.
LLCs are usually registered and regulated by the Secretary of State. This means some details on the running of the company will be different depending on the state you're in. Plus, an LLC is owned by its shareholders (known as its members). This can be just one person or multiple people.
Key features
- Limited liability: Like an Ltd, members are not personally responsible for the company’s debts beyond their investment.
- Flexible management: Members can manage the LLC directly or appoint managers.
- Profit distribution flexibility: Earnings can be distributed without being tied to ownership percentages.
- Pass-through taxation: In some countries, profits are taxed as personal income for members rather than at a corporate level.
💡Editor's insight: "Unlike an Ltd, it's not always the case that company information be made public. This will very much depend on the state you're in. For example, states like Delaware, Nevada, New Mexico, and Wyoming allow you to form an LLC while remaining anonymous."
Pros and cons
| Pros ✅ | Cons ❌ |
| Personal assets are protected from business debts | Rules differ depending on the state or country |
| Pass-through taxation can avoid double taxation | Some jurisdictions dissolve LLCs upon a member’s exit or death unless otherwise stated |
| Compared to corporations, LLCs may have fewer regulatory requirements |
Limited company vs Limited liability company compared
When comparing Ltd and LLC, it’s important to recognise that their structures are influenced by different legal systems. However, the key distinctions can be summarised as follows:
What are the main differences?
| F eature | Limited company in the UK | Limited liability company in the US |
| Legal system | UK Companies Act 2006 | State-specific laws |
| Liability protection | Shareholders’ liability is limited to their shareholding | Members have liability protection limited to their contributions |
| Taxation | Corporation tax on profits, dividends taxed as personal income | Pass-through taxation (members taxed on personal returns) |
| Management structure | Directors manage the company on behalf of shareholders | Members manage directly or appoint managers |
| Profit distribution | Based on shareholding proportions | Flexible and not tied to ownership percentages |
| Public disclosure | Financial records and key individuals must be reported publicly | Less public disclosure in many states |
Which is better?
Deciding between a limited company (Ltd) and a limited liability company (LLC) depends on where your business operates and your specific goals. While both structures offer limited liability, there are critical differences in taxation, management, and regulatory requirements.
Ultimately, the right structure depends on your business’s location, size, and financial strategy. Consulting with legal and financial professionals ensures that your choice aligns with both your short and long-term business goals.
For UK-based businesses
In the UK, an Ltd is the better and more relevant option because LLCs are not recognised under UK law. The Ltd structure offers strong liability protection, flexibility in profit distribution through dividends, and potential tax advantages over sole traders or partnerships. If your goal is to establish a business with a professional image, attract investors, or minimise personal financial risk, an Ltd could be a suitable choice.
For international businesses
In countries where LLCs are recognised, this structure may be preferable if you prioritise flexible management and tax treatment. LLCs are often favoured in the United States for their pass-through taxation, where profits are taxed as personal income rather than at both corporate and personal levels.
Final thoughts
Choosing between an Ltd and an LLC depends on your business’s location and operational needs. In the UK, Ltd companies are the standard structure for entrepreneurs seeking limited liability. While the LLC model is not directly available, understanding both frameworks helps clarify global business options. Whether forming an Ltd or working with LLCs internationally, professional advice ensures compliance and the best fit for your business ambitions.
Looking for legal advice on starting a business? Get in touch today for a free quote and to see how our small business solicitors can help.
References
- Limited company formation from Gov.UK
- Companies Act 2006
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant. Bear in mind that tax rules can change and will differ based on your circumstances.