Limited Company or Sole Trader/Partnership?
Company (private limited by shares)
- Separate legal “personality” therefore limited liability – directors not personally liable for company’s debts except for the nominal value of their shares (unless in case of reckless trading etc). However many banks require personal guarantees for loans which means that directors must repay loans if the company is unable to.
- Startup exemption for profits of new companies/new trade (related to the amount of employers’ PRSI that they pay)
- Corporation tax rate just 12.5%.
- Directors salaried under PAYE system therefore not taxable on entire profits as in sole trader/partnership.
- Can claim mileage allowance for business mileage.
- Company pension contributions for directors – no cap
- Potential for funding from Enterprise Boards/BES schemes etc – not exclusively given to a limited company but much easier to procure
- Record of trading available to anyone from the CRO so better business visibility; credit ratings available from various agencies so easier to get credit
- Overall it is often easier to operate in a business environment through a limited company, depending on the nature of your business.
- Can liquidate the company when no longer required and have any gain (in value of shares) taxed as a capital gain – potential to offset against previous capital losses on shares etc.
- Also easy to sell a company, just sell the shares and trading continues.
- Annual cost – filing annual returns, audit if relevant, penalties for late filing, holding AGM/EGM etc, filing accounts in appropriate format
- Directors responsibilities under company law
- Cost of taking profits out of the company – potential for double tax
- Filing PAYE/PRSI returns regularly for directors; annual corporation tax return for the company; also directors must submit form 11s (also true for sole traders/partners).
- Separate company bank account required.
- Close company surcharge on undistributed investment and rental income.
- Easy to start, operate and administer
- Taxed on profits so no difficulties with taking out cash provided there is sufficient to pay tax liability in October
- Possible to register a business name and trade under that for €20
- If a loss is made it can be offset against other employment income etc (only for 3 years of losses)
- Can offer greater scope for deductions – use of home office, business use of car etc
- Harder to sell a business as it is identified with the owners
- Personally liable for all debts owed to creditors; partners jointly liable for each other
- More difficult to apply for grants, contracts etc
- Taxed on entire profits for year (split in partnership proportions) so if large profits are made it can be hard to shelter these
- Direct responsibility to employees
These lists are not exhaustive and depending on the type of business other factors may be relevant.