There are a number of benefits and disadvantages of each. The best option will depend on your situation. Generally, if you are starting a business by yourself with little financial risk which will generate an income under €50,000 and you don’t need to keep money in the business a sole trader will be the better option.
In the future you can change to a limited company whenever you want. The process is straight forward and isn’t costly. However, it is important you’re aware of the advantages of both as your situation could be different. There are significant tax advantages in having a limited company depending on your situation.
If you want to start a company with multiple people, get a significant level of funding and will have a high level of risk a limited company will be the better option.
It’s important to note, you do not need to have a limited company to have a business. Anyone can start a business once you register as being self-employed with revenue and register a business name with the CRO.
In this article we will discuss which situations are suitable for a sole trader and a limited company and why. Below is an example of two identical businesses, one a sole trader and the other a limited company.The example will show the total tax paid, your total salary and the total available for reinvestment.
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The above example shows to businesses each earning €100,000. One business is a sole trader and the other business is a limited company. The main advantage the limited company has over the sole trader is it’s ability to keep money in the business. In addition, as a director of a company you have higher tax credits (€3,300 v €1,350). However, these benefits are offset by higher accounting fees (company formation + CRO annual filing) in year one.
The big difference to note from above are:
The answer is it depends on your situation. A sole trader will be the better option if:
Having discussed the pros & cons of setting up a limited company in Ireland, a limited company will be the better option when:
When you are changing from a sole trader to a limited company you may need to transfer assets to the limited company. This transfer could result in a capital gains liability.
S600 TCA 1997 Transfer of Business Relief, allows for relief on capital gains on the transfer of assets. The assets transferred into the new limited company must exchanged for shares in the company. Effectively, any capital gains are deferred until the shares in the new limited company are sold.
There are a number of conditions, please take note of the following:
Retirement relief is available to those who dispose of qualifying assets in a business. The relief gives you an exemption from any CGT which arises on the disposal of assets.
The relief is based on the following conditions