The main difference between a public LLC and a private LLC is membership. Usually only licensed professionals are allowed to form a private LLC, although the rules are not the same in every state. The two different business formations have different advantages and disadvantages. Depending on what you need from a business both types of business structures could work for you. Make sure you are familiar with how to start an LLC before starting your business journey.
What is a Public LLC
A public limited liability company is a business structure that offers the personal liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. Forming an LLC is the simplest way of structuring your business to protect your personal assets in case your business is sued.
An important factor to take note of is that a public LLC can be member-managed, meaning managed by all its members, or manager-managed, meaning managed by one or a few appointed members or nonmembers.
Pros of a Public LLC
There are numerous pros to operating a public LLC. Some of these include flexibility, tax benefits, and the simplicity of the structure to form this kind of business.LLC members are taxed once and file only one income tax return for a member’s earnings.
The business also offers limited liability when it comes to debts and obligations of the business. This means that the personal assets of a member cannot be touched if the business gets sued. There is also significant flexibility in terms of operating the business. As long as all of the members agree, each member can be designated a certain role within the LLC/ All members can also have disproportionate percentages of ownership in the LLC as long as all the members are in agreements and it is stated in the operating agreement.
Cons of a Public LLC
One of the disadvantages is that an LLC cannot issue stock because LLCs are not incorporated. Some states don’t allow single member LLCs, but rather require that two or more members form an LLC. In many states, if a member leaves the LLC, the business will automatically dissolve the LLC and owners can’t split the company profits to attempt to reduce taxes.
What is a Private LLC
To set up a Private LLC is slightly more complicated than a public LLC. Its articles of organization must be signed by a member who is a licensed professional and must include either that professional’s license number or a certified copy of his/her professional license. The state licensing board must also approve the articles before they can be submitted to the state business authority.
Pros of a Private LLC.
A private LLC also creates the idea of trustworthiness as the business is registered and regulated. This gives you a positive reputation amongst clients. Banks will also often be more willing to loan your LLC money if it is private. Your company also has tax benefits, as dividends can be taxed at a lower rate than income earned from the business.
Cons of a Private LLC
The disadvantage of a private LLC is that they have less privacy due to the fact that the company details are available to the public on the company’s house database. A private LLC also has some increased costs such as hiring an accountant, which can be substantially more expensive than for a public LLC.
Private LLC directors are also taxed twice and are required to file accounts and returns to the company house website every year. If they do not file these documents they can be fined or even legally prosecuted.
Deciding whether to register you company as a private or public LLC is a big decision that shouldn’t be taken lightly. Hopefully, this article has provided you with some clarity on the differences between the two and has made the choice a bit easier.