Difference between LTD and LLP

LTD, or a Private Ltd Company, is owned by shareholders, but managed by directors. However, in a Limited Liability Partnership (LLP), owners or shareholders are the members or sole investors of the business.

Both types of concepts have one thing in common – limited liability. It refers to the notion that the shareholders will not be held personally liable for the debts owed by the company or business. Therefore in case of liquidity, only company held assets will be paid out to the creditors.

Shares cannot be offered to the public by a private limited company. However, they can be traded among the shareholders or the members. In a partnership, the concept of shares does not exist, with partners simply investing their own money for growth or expansion.

The incorporation of a private limited company is a little more complex when compared to a partnership. While partnerships have existed for a long time, Ltd companies are growing day by day as they have the ability to pursue bigger financial activities due to several money generating avenues.

There are tax advantages for the members, given that dividends are taxed at a lower rate. However, partners will pay tax on the amount they have invested and the profits generated from the business.

It is difficult to raise capital or obtain credit in a partnership when compared to a private limited company. However, there is greater privacy in a LLP as Ltd companies will need to report their activities to the general public.

This nonetheless, leads to greater internal conflicts when one incorporates as an LLP. Any negligence shown by one partner could easily dampen the success of the business. However, for an LTD company, there is greater transparency, with all the decisions taken in a proper manner. Ltd will further exist even if the shareholders retire or die but running an LLP can be difficult if a partner decides to leave.

Instructions

  • 1

    LTD

    An organizational structure, commonly used in Europe, designed to offer its owners limited liability. The amount may or may not be pre-determined, allowing shareholders greater protection.

    - Image courtesy: thevoiceovervoice.co.uk

  • 2

    LLP

    It is a combination of a regular or traditional partnership and corporation, allowing one or more partners to practice limited liability. The partners will however be the sole owners of the business and will be looked upon to make important management and business decisions. LLPs were formally established after the turn of the century.

    - Image courtesy: indiamart.com

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