Many know that LLC is a Limited Liability Corporation where the partners and the owners limit their scope of liability to the capital, they bring in. Also, LLC is the most famous and widely considered entity classification among partnerships as it supports the liabilities of the partners except for the General Partners. It is mostly seemed by people that LLCs are the same be it Public or Private. Though that is not the right assumption as Public LLC and Private LLC are two different concepts.
Public LLC and Private LLC are different in many categories which we will discuss later. First let’s be clear what is Public LLC and is what is a Private LLC?
Public LLCs also known as PLC (Public Limited Company) by its name signifies that it is the company which is publicly traded. These LLCs are listed on the stock Market and public are free to subscribe and be the probable shareholders of the Public LLC. It is important and mandatory for Public LLCs to describe their Public LLC status in their names when communicating with investors and other stakeholders.
Basically, a PLC is a Publicly traded LLC that offers its shares of stock to the general public. The shareholders who have subscribed through these shares are not responsible for any business losses in excess of the amount they paid to subscribe for their shares. A PLC’s operations are strictly regulated and are bound with instructing their shareholders of all the periodic reports to keep them updated about the financial health of the organization.
Private LLC is the business structure for privately owned companies that combines the concept of Partnerships and Corporations. Like Public LLC, Private LLCs are not traded publicly. These Private LLCs have their own business Directors, owners, partners and executives who bring in their own capital for the corporation and are limited to its liability. Private LLCs have the flexibility to choose the entity classification for tax treatments whether to be taxed as a ‘Pass-through entity’ or a Double Taxation entity.
Private LLCs are unincorporated and can be owned by Corporations, partners, and the owners.
Public LLC and Private LLC can be differentiated significantly on the following factors –
Formation of the LLC
- A Public LLC is established and formed by two or more Directors, or the stockholders who are willing to collaborate. The Directors decide the way how the formation is conducted and are then required to file “Articles of Association” or “Memorandum of Association”.
- A Private LLC has to file an “Articles of Organization” with the Secretary of a specific state where the Business is formed.
- Public LLC can decide their entity classification for tax matters. They can choose whether they want their Tax to be treated as Partnership, S-Corporation or a C-Corporation.
- Private LLC are generally the pass-through entities. In Private LLCs only the Partners, Owners and Executives who have their share in the business have to pay taxes. They can avoid paying for their Private LLC as a double taxation entity.
Management of the LLCs
- Public LLCs are generally managed under the supervision of Board directors or the shareholder with highest stake. The Directors of the Public LLC are not liable for any debts in addition to their capital investment. They are however liable and responsible to repay the personal loans they owe to their Public LLC.
- Private LLCs are managed by its members who are responsible for the company’s commitments. Though they can also attain the right to protect them against Company’s debt.
Privacy and Anonymity
- Public LLCs does not get the option to be anonymous with its actions. As the Public LLCs involve participation of public shareholders, they have to inform and instruct their shareholders regarding everything from their code of conduct to management actions.
- Private LLCs on the other hand have the freedom to keep their actions anonymous. They can make their decisions and other management actions anonymously and with utmost privacy by the decision of the ultimate Directors.
Company’s Share Division
- Public LLCs can sell and divide their company’s shares easily as they are understood by the actual value of their share price prevailing in the ultimate share market.
- Private LLCs may find it difficult to sell and divide their shares among different share acquirers as the Private LLCs are not listed on the share market, which makes it difficult for them to understand their actual share value.
- Public LLCs get large investments from equity investments which can be distributed easily among individuals within the Public LLC. Though the company is not accountable to pay these shareholders back if the company goes bankrupt.
- Private LLCs does not receive equity investments but are shored with other large investments which makes these investors the ultimate Directors or Chief operating officials.
Change in Entity Classification
- Public LLCs find it difficult to change their entity classification to Private LLCs, as they would have to buy back all of their shares first and then go through all the regulation processes.
- In Private LLCs, it is not that difficult to get converted to Public LLCs.
- Public LLCs involve large regulation processes and multiple processes including the regulations imposed by the Securities and Exchange commissions of the country as Public LLCs involve the transactions of stock securities. Public LLCs are also bound to launch their periodic reports publicly at regular intervals.
- Private LLCs also involves the regulation processes but they have to obligate lesser than that of Public LLCs. As Private LLCs don’t involve the exchange of stock securities, there are no exchange commission regulations to be followed.
The above factors differentiate majorly between Public LLC and a Private LLC. Though the meaning of an LLC depicts the same point of limiting liability up to the capital invested, but it gets differentiated significantly when some LLCs are traded publicly and some are not.