Sole Trader or Limited Company?

Caitlyn Buchanan from Company Bureau weighs up the pros and cons of setting your business up as a sole trader or as a limited company in Ireland.

Ireland is a great place to operate a business for both local and international entrepreneurs. Since Brexit, Ireland is the only predominantly English-speaking country in the EU and is in a favourable location to service both the UK and European markets.

With a favourable tax system and business-friendly policies, it is easier than ever to start a business in Ireland.  

“There are pros and cons to each option for starting a business in Ireland”

This article contains information to help you decide if a sole trader or a limited company is right for your business.

Choosing a Business Type

When looking to start a business in Ireland, there are generally two main business structures that entrepreneurs choose from; register as a sole trader or incorporate as a Private Limited Company.   

Sole Trader:       

To register as a sole trader you must be a resident within the State and have permission to work in Ireland if you are a non-EEA citizen. This business structure is an extension of the individual, so a sole trader will pay personal income tax rates on business profits up to a top marginal rate of 52pc. A sole trader is personally liable for any debts of the business, so personal assets could be at risk to pay off creditors. This option is suitable for entrepreneurs who wish to start and stay small. Some people choose to continue working in an existing job while they get their sole trader business off the ground. 

Limited Company:           

A Private Limited Company (LTD) is the most common structure for private and commercial business ventures. The company benefits from the low corporate tax rate of 12.5pc on profits made. It can have multiple directors and shareholders who benefit from limited liability, meaning their personal assets are protected should the company become insolvent. Only one director is required once a separate secretary is appointed.   limited company is a separate legal entity from its owners, and a corporate bank account is required to manage the business funds.

It is possible to start a sole trader business and change to a Limited Company once the business grows. From a taxation perspective, once a business realises turnover of more than €60,000 it may be beneficial to operate as a limited company, however, it is always advisable to seek professional advice from an Accountant. 

Business Name vs Company Name

Sole Trader:       

An Irish sole trader must register a business name; however, business names are not protected. This means that other businesses/competitors could choose to operate under a similar name. 

Limited Company:          

A limited company name has enhanced protection because the Companies Registration Office will not register a name that is too similar to any existing company name on the register.

If you have a unique name for your business and having protection for that name is important, you should consider incorporating a limited company. Additional options to protect your company name include registering a trademark and registering a suitable domain name

How to Register an Irish Business

Sole Trader:       

Many entrepreneurs choose to start as sole traders due to the ease of registration and compliance that it offers. It involves registering the business name with the Companies Registration Office and registering for tax with Revenue. You are not required to have a separate business bank account, but you may choose to use a designated account to keep personal and business finances separate. 

Limited Company:          

Registering a LTD company is a slightly more complex process. To be incorporate as a limited company will need to choose a company name, decide on a share structure, and draft a company constitution. To avoid delays and hassle, we recommend using a licenced and regulated Company Formation Agent to assist you. After incorporation, the company will need to open a corporate bank account and register for taxes within 30 days of commencing trade. 

Sole Trader vs Limited Company

There are pros and cons to each option for starting a business in Ireland. A Limited company can be a great option as it offers several benefits including limited liability and may be considered more credible when tendering for contracts or applying for a bank loan.

  Sole Trader Limited Company
Legal status   Extension of the owner Separate legal entity from the Directors & Shareholders
Liability Owners are fully liable for the debts of the business Limited liability- owner/s are required to pay their unpaid share capital (if any)
Taxes Personal taxation up to 52pc Corporate tax rate of 12.5pc
Business Name/ Company Name Business names are not protected Company name has some protection
Capital The business is typically funded by the owner’s savings A company can offer shares in exchange for investment
Maintenance Inexpensive to set up and maintain Slightly higher costs to set up and close a company

Necessary compliance and annual returns must be filed

 Pensions Limited scope to avail of pension tax breaks Excellent tax breaks for Directors on company pensions

How to Switch from a Sole Trader to Limited Company 

If you have chosen to start as a sole trader, you can switch to a limited company and avail of the various benefits. The process is straight forward; you will need to notify Revenue, file a cessation of business name form to the CRO and submit the new company incorporation documents. Please note that you may be required to choose a new or slightly different company name. Once the new company is formed you will be able to register for VAT, Corporation Tax and PAYE. You will also need to open a corporate bank account.

Starting a business in Ireland can be challenging without prior experience, we suggest that you seek professional advice when setting up a limited company or when converting from a sole trader to a limited company.

A trusted professional can help you to navigate the various legal requirements of incorporation and ongoing compliance.

Dark-haired woman in green dress.

Caitlyn Buchanan has been the marketing manager at Company Bureau for the past four years. Caitlyn writes various articles advising on company setup, company maintenance and changes to Irish company law. She has a strong focus on customer experience and often collaborates with the sales team to improve and streamline the online ordering system. Company Bureau has been in business for more than 23 years and have incorporated over 35,000 companies for their clients. They can have a new company set up in just 2-3 business days – to contact them today for a free consultation, click here.

Published: 8 December 2020