When you’re starting a business, one of the first decisions you’ll have to make is how to structure it. While you’ve got a variety of options to choose from, limited liability companies (LLC) are often a popular choice. An LLC is a legal entity that gives business owners added benefits compared to a sole proprietorship or general partnership and helps protect owners’ personal assets.
Forms of Limited Liability in businesses
There are a few different ways in which a business can benefit from limited liability. The main four legal structures that a company can incorporate as are:
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Limited Liability Company (LLC)
In an LLC, the directors and shareholders are classed as ‘members. This model is typically adopted in the US rather than in the UK, where a Ltd is preferred. In an LLC, there can be multiple members and the company can be taxed as a partnership.
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Private Limited Company (Ltd)
A private limited company is a common business structure in the UK and is where the company owners are classed as shareholders. A Ltd company pays Corporation Tax on their profits and has to file financial reports to the competent official authorities.
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Public Liability Company (PLC)
In a public liability company, shares in the business are sold to the public via the stock market. People that buy shares are the ones classed as shareholders but are overseen by a main CEO and a board of directors.
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Limited Liability Partnership (LLP)
A limited liability partnership is where the business has two or more owners and the business is run between them. The partners will create and sign documents that detail rules they must follow and govern things such as profit distribution, ownership percentage and debt allocations.
Advantages of Limited Liability companies
There are many advantages of open and establishing limited liability companies including:
No Personal Liability:
Directors and Shareholders aren’t personally liable for company debts and eliminate risk of their personal assets and property being affected in the case of insolvency.
Tax Benefits:
Limited companies aren’t taxed on personal tax rates. Directors can also pay themselves a salary at the personal allowance tax rate and the rest as dividends to benefit from a lower tax rate overall.
Future Security:
As the company is separate from its owners, the business can continue to operate if directors should retire or step away from the business. This provides security for employees and other members.
Easy startup:
Setting up an LLC is simple since it doesn’t require officers, shareholders, or director meetings. The only requirement to form an LLC is filing a formation document, which contains an article of organization.
Few ownerships restrictions:
There is no cap on the maximum or minimum number and type of owners an LLC can have. It could be one, two, or hundreds of owners, and comprise individuals, foreign entities, or corporations.
Choosing the right business structure is crucial for managing your legal, financial risks and protecting your personal assets. Limited liability companies offer a safety net, ensuring your personal finances are generally shielded from business debts and legal claims. Whether opting for a private limited company, public limited company, or a limited liability partnership, each structure has distinct advantages and drawbacks to consider.
Would you like to know more about limited liability companies? Hire our legal consultancy services at “Consortio Law Firm”, as they are your ideal guide to guide you towards establishing a limited liability company at a proper legally framework, where our lawyers and consultants provide all the resistances that contribute to facilitating legal procedures.
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