You have decided to start your own business – but which business structure should you choose – Sole Trader or Limited Company?
“This is a key question for many of our clients,” says Accountant Online founder and director Larissa Feeney. “To put it simply, starting out as a sole trader is quicker and easier if you are doing it all yourself. But it may cost you in higher taxes and greater liabilities for claims against your business.”
“On the other hand, there are a lot more steps and regulations involved in setting up a company in Ireland, unless you outsource some of this hard work. However, you will pay much lower rates of tax and may be better protected against liabilities.”
Larissa says that for business start-ups, they often base their choice on issues such as how they wish to receive payment. “For example, if you incorporate your company, then you are an employee with a salary. If you are a sole trader, you describe any money you take from the company as ‘drawings’. These ‘drawings’ include what you pay yourself every week or month, plus personal expenses you take from the business, such as lunch.”
“Some people start out as sole traders and then change their business structure later to set up a Limited Company. Talking through the options with one of our chartered accountants will help you choose the right option for your business,” she adds.
To make it easier for you, Accountant Online has drawn up a summary of key points of pros and cons for each business structure:
Pros and Cons of Setting Up a Limited Company in Ireland
- Tax on profits for limited companies is at a corporate tax rate of 12.5%.
- This compares very favourably to personal tax rates of up to 54% for sole traders.
- Personal tax benefits such as private pension are better. This allows company directors to put profits into their pensions virtually tax-free
- You have more credibility as a business. If you are seeking business from corporate or public sectors, they often insist that you operate as a limited company
- More grant schemes and options are available to limited companies setting up in Ireland, e.g. the New Frontiers programme.
- Protection of your company name
- Limited liability on claims against your business. Personal assets of directors or shareholders generally cannot be seized to pay off company debts. However, there are exceptions to this e.g. where directors are deemed to have been trading recklessly, or if directors have signed a personal guarantee. It would be normal for banks to ask for a personal guarantee for overdrafts/loans and some trade suppliers may also seek personal guarantees.
- Setting up a company has more steps involved.
- There are significantly more ongoing statutory requirements in order to keep your business compliant.
- The formal Company Secretarial requirements add to the cost of running your business and closing it down
- A company officer or board member has far more legal responsibilities than a sole trader.
- Disclosure of personal information and trading information; Once you are a Director of a company, any member of the public can find out your date of birth, your home address and information about your business from your published accounts in the Companies Registration Office. However, if the registrar of Companies believes that your home address should remain confidential for any reason, we can arrange this application for you.
Pros and Cons of Being a Sole Trader
- Being a sole trader is the simplest way of setting up a business
- Closing down the business is very simple
- You don’t need to file annual returns with the Companies Office (CRO)
- Accounts are not subject to an audit
- You can use your own name, or register a business name which Accountant Online can take care of for you.
- You are personally liable for all debts; your personal assets are at risk if there is a claim against the business
- You do still need to keep proper books and records and to file tax returns and pay VAT if applicable
- Tax is applicable on personal tax rates which can be up to 54%
- Loss of PAYE Credit: Employees currently have a PAYE credit of €1,650 versus a tax credit of €950 for the self-employed
- If your business fails, it may be more difficult to obtain social welfare than if you are employee who has been made redundant.
Are Accounting Fees Higher For a Sole Trader or Limited Company?
When choosing an accounting firm, try to select one which has a transparent fee structure. This way you can receive a reliable quote for costs. Accountant Online operates on a fixed fee basis so that you know how much to budget. We deduct a fee per month to help your cash-flow and to avoid a big price shock at the end of the tax year.
Accounting fees for Limited Companies
For a startup limited company we offer a fixed fee of €25 per month for the first 6 months of trading so that you get the best start in your new business. After that time, our fees for limited companies vary depending on the complexity of your business and the size of your turnover.
For sales turnover of around €80,000 per year, for example, the cost is €55 + VAT per month. This includes all compliance requirements, Financial Statements, Tax Returns and Annual Returns.
Accounting fees for Sole Traders
Accountancy services for sole traders may command a lower fee dependent on the type of turnover and business complexity. You can see our schedule of fees listed here. If you are just starting out, you can see the range of accounting fees for startups here. If you are interested in saving costs on your accountancy fees, check out our tips here.
Call us on 01 905 9364 for a quotation, or schedule a free Skype call consultation with one of our Chartered Accountants
I Have Decided to Set Up a Limited Company. What is the Next Step?
- Documentation –We have a great post on all the limited company documentation you need to set up. In summary, you need details of all directors, along with their PPS numbers, addresses and birth dates.
- Choosing your company name – pick a few names that you like, we will do a free company name check for you to make sure it is available.
- Where – If you want to register a company; it must register an address in the Republic of Ireland. If you don’t have an office address and don’t wish to use your home address, Accountant Online can be your registered address for around €25 per month + VAT.
- Shares – how do you want to split the shares of the company? For fast formations, we usually advise that you issue 100 shares of 1 Euro in value and have authorised shares of 10,000. This just means that if you want to ‘issue’ shares later, you have lots available to issue. You can change this later at any time.
- Directors – you must have at least 1 director and 1 Company Secretary. At least one director should be a resident of a Member state of the EEA. If none of the directors is resident in a Member state, a bond of 25,000 is required.
- Purchase Online. Our forms are really easy to complete and we have helpful tips all the way through the process. Although, if you’d prefer us to complete the forms for you, give us a call on 01 905 9364 and we’ll be delighted to help.
Now that you are ready to take the next step; take a look at our company formation package. We cover everything from company name checks to your Certificate of Incorporation.
Want to Register a Limited Company in Ireland? We’ve got the Perfect Startup Package For You
We make it simple for new startups trying to register as a limited company by bringing together all the services a startup needs at the best possible price. Check out our list of exclusive partner offers.
What Does Our Company Formation Service Include?
We have compiled the most exclusive package, specially tailored for you. which includes;
- Certificate of Incorporation
- Company Constitution
- Share Certificates
- Schedule of Company Officers
- Secure Digital Register
- Corporation Tax Registration
- First Annual Return
- Lifetime guarantee of service regarding your new company formation
- Discounted: workspace, web and logo design, printing services, office supplies and xero accounting software
If you’re not ready to take that step yet these blog posts will help guide you through the process;
- If I’m a limited company, will I pay less tax?
- Best Business Bank Account for Startups in Ireland?
- Exclusive Startup Offers for New Businesses
At Accountant Online, we can set up your limited company within a week! Our company formation service is fast, secure and given by trusted, qualified accountants.
Accountant Online is a firm of award winning Chartered Accountants serving Ireland and the UK. We understand how important it is for you to meet your compliance obligations, while minimizing your tax liability. We aim to save our clients money without compromising on the quality of our service. Get in touch for a free consultation on 01 905 9364 or send an email to firstname.lastname@example.org