LTD LLC: Everything You Need to Know
Ltd LLC refers to the limited part of a limited liability company. This business structure protects its owners from liabilities by limiting what they are held responsible for legally to their initial contributions to the company. 3 min read
Ltd LLC refers to the limited part of a limited liability company. This business structure protects its owners from liabilities by limiting what they are held responsible for legally to their initial contributions to the company.
A limited liability company (LLC) falls under state regulations, and the requirements for these entities vary depending on the state. The owners, called members in LLCs, will need to make sure that they research the regulations and reporting requirements (if any) that are required in the state in which their LLC is formed or conducts business.
LLCs are known as pass-through tax entities, meaning that the profits and losses of theses businesses are passed through to their members. The companies are not taxed but members are. If an LLC has two members, each taking home 50 percent of the company profits, they will both pay taxes on that income along with their personal income taxes.
Unless an LLC elects to be taxed as a corporation with the Internal Revenue Service (IRS), it will be treated with pass-through taxation and avoid double taxation. LLCs can choose their own tax classification because the IRS doesn't actually recognize LLCs as taxable entities. The members can choose to have their LLC taxed as one of the following:
- Disregarded entity (sole proprietorship)
LLCs combined some of the best qualities of other entity types, like corporations and sole proprietorships, into one structure. They avoid the many regulations and rigid management structure of corporations and the potential for liability issues that comes with a sole proprietorship.
Since the 1970s, when LLCs become a legal business structure in some states and later throughout the U.S., they have grown more popular with entrepreneurs. More than 30 years later, LLCs have surpassed corporations in popularity due to their flexibility and ease to start up and management.
Running an LLC
The members of an LLC can choose its management structure. They can either be manager-managed or member-managed. Member-managed LLCs are run by all of the business's members. Manager-managed LLCs can either choose one or a few members to act as managers, hire a third-party, or combine member-managers with third-party managers to form a management team.
LLCs can also choose how to allocate their profits. Other entity types are required to assign profit distribution percentages that correlate with the members' capital contributions. A member in an LLC can be awarded a higher percentage than another with the same initial contribution because he or she took on more management duties, or something along those lines.
Anytime a member of an LLC either dies or leaves the company, it is dissolved. Other members will then need to decide whether to pursue a new company. How an LLC will handle these types of major events should be well-detailed in its operating agreement.
When forming an LLC, you'll need to file articles of organization with the Secretary of State in the state in which you plan to conduct business. There's a filing fee, and you'll be required to provide the following information:
- LLC name (must include some form of the limited liability company title) and address
- Member names
- Name and address of registered agent
- Purpose of the LLC
What Does Ltd Mean?
"Ltd" is an abbreviation for "limited" that can be used alongside any business structure to denote the limited liability protection for the owners in that business. For instance, the partners called limited partners in a Ltd partnership are protected from personal liability the same way the members of an LLC are. Other entity types that might carry this descriptor, Ltd, are C corporations and S corporations.
The European Union uses the Ltd notation for legal companies with more regulations and requirements when it comes to ownership numbers and profit distributions that is typical of American businesses.
The owners of any business with the limited notation in the title benefit from protection from creditors. Members of LLCs can only be held liable up to the same amount of their capital contributions.
Because an LLC is its own legal entity, it can be sued. If the business is sued, the owners of that business are protected from the court's ruling against the LLC.
Sole proprietorships and some partnerships do not enjoy this level of protection. So, if you're looking for liability protection for some or all of the owners of your business, consider a Ltd LLC or another Ltd business structure.
If you need help with a Ltd LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.