LTDs vs LLCs: What’s the difference?
If you’re looking to register a company, you have a wide range of structures to choose from, even if you don’t reside in the country where the company is formed.
In this article, we’ll compare two of the most well-known corporate structures: an LTD (a private company limited by shares registered in the United Kingdom) and an LLC (a Limited Liability Company registered in the United States). We’ll cover key information, including owners’ liability, tax considerations, the formation process, and more. Let’s get started.
LTDs: The basics
Alongside sole proprietorships, LTDs are the most popular business structure in the UK (and the most common type of company). To form an LTD, you must register it with Companies House, the UK’s registrar of companies.
An LTD is managed by its directors and owned by its shareholders (also known as members). One person can form and operate an LTD, acting as both shareholder and director. Alternatively, multiple people can form and run the company, each taking on different roles.
The cost of starting an LTD varies depending on the method you choose. Registering online directly with Companies House costs £50. However, this basic service may not be suitable for all companies and does not include any additional services.
Accountants often offer company formation services, with fees ranging from £250 to £500, depending on the level of service provided.
Alternatively, Startxpress can assist you with the process, offering tailored services to meet your specific needs.
Once applications are submitted to Companies House, companies can be formed within 24 hours.
LLCs: The basics
LLCs are one of the most popular business structures in the US. Unlike the UK, where companies are overseen by Companies House, LLCs are usually registered and regulated by the Secretary of State in the state where they are formed. This means that some details regarding the setup and operation of an LLC can vary from state to state.
An LLC is owned by its members, who generally also manage the LLC on a day-to-day basis. This can be just one person (a single-member LLC) or multiple people (a multiple-member LLC).
The cost of starting an LLC depends on the state where the company is registered and whether it is formed directly with the Secretary of State or through an agent or accountant.
Startxpress can assist you with the process, offering tailored services to meet your specific needs.See our pricing here.
The time it takes to register a Limited Liability Company (LLC) depends on the state where it’s being formed. Generally speaking, this process usually takes a few weeks.
LTDs vs LLCs: Limited liability
LTDs and LLCs share several similarities, with the most significant being limited liability. This key attribute provides financial protection to company owners, ensuring they are generally not personally liable for the company’s debts if it encounters financial trouble.
Owners of a UK LTD are only liable for the unpaid value of the shares they possess, which is typically just the nominal value, often as little as £1 or less. Once they have paid for their shares, they usually have no further liability if the company incurs debt.
Similarly, owners of a US LLC benefit from limited liability protection and are generally not personally liable for the company’s debts or legal obligations.
LTDs vs LLCs: Ownership
As mentioned earlier, an LTD is owned by its shareholders, known as members. Each shareholder’s ownership of the company is determined by the proportion of shares they hold. For example, if a company has one shareholder, that individual owns 100% of the company. If there are two shareholders with one share each, they each own 50%. If there are three shareholders, with Shareholders A and B holding one share each and Shareholder C holding two shares, the ownership split would be 25%/25%/50%.
Details about the shareholders are recorded in the company’s register of members. This information is provided to Companies House at incorporation and is updated throughout the company’s life through the filing of the annual confirmation statement.
By contrast, LLCs do not have share capital and therefore do not issue shares to their owners. Instead, each owner holds a stake in the company expressed through a membership interest, and the owners are called members. This membership interest can be shown as a percentage or as units. The absence of shares can complicate ownership transfers, as changing members in many LLCs requires unanimous approval.
See also:
This information is recorded in the LLC’s operating agreement. In some states, it may also be submitted to and made available by the Secretary of State for the state in which the LLC is incorporated.
LTDs vs LLCs: Paying tax
LTDs are obligated to pay tax on their profits through Corporation Tax, currently set at a main rate of 25%. However, smaller companies may benefit from special rates and reliefs.
Since the company and its owners are separate legal entities, the owners are not personally liable for Corporation Tax—the company bears this responsibility. However, when dividends are distributed to shareholders as a form of financial reward for their ownership, shareholders are subject to Dividend Tax. This tax is paid by the shareholders themselves, not the company.The tax obligations for LTD shareholders can be complex.If you have any additional questions or require further assistance, please don’t hesitate to contact us at support@startxpress.io. We’re here to assist you throughout the entire process.
In contrast, LLCs typically do not pay taxes at the entity level. Instead, tax obligations are passed through to individual members, who pay taxes on their share of the business profits. This characteristic earns LLCs the designation of ‘pass-through entities,’ where tax liability passes through to the individual members. However, an LLC is still required to file certain tax forms with the Internal Revenue Service (IRS), unless it is a single-member LLC.
The tax responsibilities for LLC members can be complex, depending on factors such as the number of members in the company and the state where the LLC is incorporated. If you have any more questions or need further assistance, feel free to reach out to us via support@startxpress.io. Our team is here to support you every step of the way.
See also:
- Taxation Compliances for Non-US Citizens/Non-US Residents
- How are LLCs taxed?
- What Tax Compliances are required for me?
- What is considered US source income?
- Do international sellers have to deal with sales tax in the US?
- See all of the guides related to US Taxation and Compliance
LTDs vs LLCs: Anonymity
Once an LTD is registered, specific information about the company and its personnel is entered into the Companies House register.
This includes essential company details such as the name, registered office address, and business activities. Additionally, details about directors, shareholders, and individuals with significant control—comprising names, dates of birth, and service addresses—are also recorded. Subsequently, when the company commences filing annual accounts, this financial data becomes publicly accessible.
While residential addresses can be disclosed on the register if used as the registered office or service address, this can be avoided by utilizing a Registered Office Address and Business Address.
Regarding LLCs, the information made publicly available varies by the state of formation. In some states, similar details to those of an LTD, as mentioned earlier, are disclosed. However, in states like Delaware, Nevada, New Mexico, and Wyoming, it’s possible to establish an LLC while maintaining anonymity.
While LLC financial information isn’t always required to be publicly disclosed, it’s customary to share this information with governmental bodies, potential creditors, and investors.
See also:
- Should you incorporate your LLC in Delaware or Wyoming?
- Should I form in Wyoming or Delaware?
- Wyoming C-corp or Delaware C-corp
LTDs vs LLCs: The company formation process
Forming an LTD
To register an LTD, you’ll need to provide the following information on an application form, typically used for online registration (though it may not explicitly reference the official form name ‘IN01‘):
- Unique company name (cannot be the same as any other on the Companies House register). Check your company’s name availability in seconds for free!
- Business activity description (selected from 1 to 4 Standard Industrial Classification or SIC codes)
- Registered office address (official address for the company and where official documentation will be delivered)
- Director details: date of birth, nationality, occupation, service address, and residential address
- Shareholder details: date of birth, nationality, occupation, service address, and residential address
- Share details: total held by each shareholder, currency, nominal value, paid-up amounts, and share particulars
- People with significant control details: date of birth, nationality, occupation, service address, residential address, and nature of their control (e.g., holding more than 25% of shares)
- Articles of association: attached to the incorporation application, this document governs how the company operates. If using Startxpress for registration, appropriate articles of association will be provided.
Upon submission of this information, the company can typically be formed within 24 hours.Once formed, you will receive a certificate of incorporation.
Starting your company in the UK? Reach out to us at support@startxpress.io for any questions or assistance. We’re here to support you at every step.
Forming a LLC
The process of setting up an LLC varies by state. Typically, it involves providing the following information on a version of the state’s ‘Articles of Organization‘ (whether online or offline):
- A unique company name – this must not duplicate any other registered entity within the state.
- Registered agent details – this individual or entity receives official company documents and must have an address within the state of formation.
- Business address – the physical location from which the company operates.
- Reason for company formation – a written statement outlining the business purpose.
- Management structure – specify whether the LLC will be member-managed (run by owners) or manager-managed (delegated control by members to a designated manager).
- Signatures of the LLC members
LLCs are typically formed within a few weeks after submitting the required information, varying by the registration state. Some states, like California, New York, and Delaware, may also require filing an operating agreement. This document, similar to an LTD’s articles of association, outlines the LLC’s management structure, decision-making processes, and profit distribution among members. Creating an operating agreement, even if not mandatory, is highly recommended.
Starting your company in the US? Reach out to us at support@startxpress.io for any questions or assistance. We’re here to support you at every step.
LTDs vs LLCs: Post-company formation
Once an LTD has been registered, several ongoing obligations are necessary to keep the company compliant:
- Register for Corporation Tax within 3 months of starting business activity.
- File an annual confirmation statement and update Companies House regarding any significant changes to your company, such as a change of registered office address.
- File annual accounts or dormant company accounts if the company is non-trading.
- Register for PAYE if the company employs people.
- Register for VAT if the annual turnover exceeds £90,000.
As an LLC, you may need to (depending on the state of formation):
- File an annual report.
- Pay an annual filing fee.
- Pay franchise tax.
- Apply for an Employer Identification Number (EIN)
LTDs vs LLCs: Summary
You may be wondering which of these two structures is best for you. Both have their strengths and weaknesses.
An LTD is easy and inexpensive to set up, offers rigorous financial protection, tax efficiency, and provides business credibility that few other structures can match. However, running an LTD compliantly requires administrative effort, and the post-formation duties can be a distraction from business operations.
LLCs also provide financial protection and are more flexible in terms of management and ownership. However, because each US state has different rules and regulations, it’s easy to get tripped up by your obligations. Additionally, transferring LLC ownership can be challenging due to the absence of share capital.
Ultimately, the best choice for you and your business depends on your specific circumstances.
So, are you ready to start your company?
In conclusion, as you embark on your entrepreneurial journey, remember that our dedicated team is available to assist you every step of the way. Whether you choose to start your business in the dynamic landscape of the United States or the thriving ecosystem of the United Kingdom, Startxpress is here to support you. Our platform makes launching your business a seamless experience, ensuring you step into the world of entrepreneurship with confidence.
Contact us today for expert guidance and take the first step towards establishing your business. Click here to start your company in the US or click here to start your company in the UK. Don’t wait – let’s make your business dreams a reality!
For more details, check out the Startxpress Help Center and Blog. If you need assistance, contact us at support@startxpress.io! We’re here to help make managing your business as smooth as possible.
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