The main difference between the two options is that an Irish Limited Company is a separate legal entity from the individuals involved (Directors and Shareholders). A Limited Company needs to file Annual Returns with the Companies Office and there is more compliance and red tape. However, they are generally thought to be the most tax-efficient – Corporation Tax rate 12.5%. Also Company Directors can put profits into their pensions virtually tax-free (within reason of course!)
If you register as a Sole Trader or a Partnership you will need to register a Business Name with the CRO if you are carrying out business under a name other than your own e.g. ‘John Smith Carpentry’ as opposed to just ‘John Smith’. Legally and financially speaking you and your sole trader business are the same person, so you are personally liable for the debts of the business. Unlike, a Limited Company where owners or shareholders are protected by ‘limited liability’- the company has the Debts not the individuals.
Advantages of a limited company:
- Limited liability. This means that the liability of the shareholders is limited to the amount paid for shares. This can only be changed if Directors have traded fraudulently or negligently, or if they continue to trade when the company has been struck-off.
- Low corporation tax. The rate of corporate tax in Ireland is only 12.5%
- The business is a separate legal entity from the people involved (Directors & shareholders)
- The company name is protected. Nobody else can use the name as a limited company name.
- Excellent tax breaks for Directors on company pensions.
- Business can appear more credible when bidding for tenders, signing contracts, etc.
- Clear and defined ownership and duties.
Disadvantages of a Limited Company:
- Director/Secretary. You need a second person to make a company.
- Compliance. There is more compliance/regulation necessary with a limited company. Annual Returns have to be filed with the CRO. Annual Accounts are filed in the CRO and the public can access these.
- Costs. There are higher costs of compliance for a company, and costs to open and close the business.
Advantages of Sole Trader/Partnership:
- Privacy – no one can access your details nor your Accounts.
- Simple and cheap to register and maintain records as a Sole Trader
- Minimal cost to close the business if required
- No annual returns to file with CRO
Disadvantages of a Sole Trader/Partnership:
- No Limited liability. No limit on personal liability for the debts of the business
- Taxes. Profit is taxed at personal tax rates (up to 52%) instead of corporation tax at 12.5%.
- Limited scope to avail of pension tax breaks and executive pensions
- May not be suitable for certain contractors who need a limited company
- May not be considered as credible as a limited company when tendering for contracts, etc.
- Certain bodies and Grants will only transact with limited Companies.
Call us today at Park Chambers to discuss the best business structure for you at 051-877965 or email us at info@parkchambers.com