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Sole Trader or Limited Company: Full Comparison Guide

sole trader or limited company

Business structure is one of the most important decisions you have to contend at the beginning of your entrepreneurial journey. Moving forward, will you operate as a sole trader or limited company.

The structure you will choose will impact on all major aspects of your business starting from how much you can earn, what taxes at what rates you’ll pay, and even what happens should your company hit troubled waters. Thus, it’s vital to weigh all pros and cons of your business structure to make an informed decision.

On this page, we’re analysing the peculiarities of being a sole trader vs a limited company in Ireland to find out what will serve your business throughout incorporation, maintenance, and potential shutdown.

Limited Company by Shares (LTD)

Limited company by Shares is the most popular type of legal entity in Ireland. This type of enterprise is controlled by beneficial shareholders – people who own no less than 25% of company shares. The maximum number of shareholders for Irish Ltd is 149. An Irish company limited by shares only requires at least two company officers: a director who can also hold the 100% of shares and a company secretary. As long as there are more than one director of a company, one of them can act as a secretary.

Legal Requirements for Setting Up Ltd in Ireland

Starting a Limited company in Ireland is quick and easy. Local authorities welcome foreign investors and attract them to the country creating a favourable tax environment and imposing minimum requirements for company formation. To start a limited company in Ireland, make sure you comply with the following legal requirements stated in Irish Company Law:

  • At least one company director who is a resident of the European Economic Area or bond
  • Company secretary (can be the same as a director provided there are more than one directors)
  • Registered business address or local address
limited company or sole trader
Source: Unsplash

Pros and Cons of Irish LTD Registration

In fact, some entrepreneurs who’re only at the start of their business journey are afraid to start a company since it’s associated with augmented risk and responsibility. To help you make an intelligent decision, in this section, we’ll explain the key pros and cons of opening Irish Ltd. 

Benefits of Irish Ltd

  • Company directors’ assets cannot be used to settle the company’s debts
  • Irish Ltd can have as few as two company officers: a director and a company secretary. 
  • Low corporate tax of only 12.5% on company gains
  • More credibility in the industry
  • Increased eligibility for tax reliefs and benefits for company directors

Disadvantages of Starting Limited Company by Shares

  • Longer and more expensive to open and shut down
  • Company’s financial accounts are available to the public
  • Larger fines and penalties for non compliance
  • More corporate duties, return filing and tax payment responsibilities

How Long Does it Take to Open Ltd in Ireland

The process of opening Irish Ltd often takes around 10-14 working days depending on the workload at the Companies Registration Office. However, before filing to CRO, make sure you gathered all the required papers for company formation in Ireland.

Sole Trader Registration in Ireland

Sole trader is one of the most popular business incorporation models in Ireland. Individuals who register as sole traders get personally liable to pay any potential tax debts your business may have. Sole traders will have no partner in their business but they’re allowed to hire employees. Similar to limited companies, sole traders are responsible for keeping records of their business, however, there are fewer tax and accounting and tax obligations imposed on them. 

How to Register as Sole Trader in Ireland

To register as a sole trader in Ireland, you must register as a self-employed person with Revenue if your net income is above €5,000. You will obtain a PPSN (Personal Public Service Number) and Tax reference number. Your tax reference number would be the same as your PPSN, however, PPSN doesn’t automatically become your TRN until you register for tax. Individuals can register for tax in Ireland through e-registration via ROS (Revenue Online Service).

sole trader vs limited company
Source: Unsplash

Pros and Cons of Being a Sole Trader in Ireland

Sole trader seems a faster and more efficient option for entrepreneurs who want to test the waters first or even doubt the longevity of their business. Let’s have a look at major advantages and challenges that sole trader registration in Ireland. 

Advantages of Being a Sole Trader in Ireland

  • Less legal filings and tax duties
  • Easier to open and shut down
  • More financial privacy: your account details are not available to public

Disadvantages of Being a Sole Trader in Ireland

  • Sole traders are personally responsible for business’ debts. Your car, house, and personal savings can be used to pay potential creditors.
  • All income of sole traders (minus expenses) is subject to an income tax which can reach up to 55% depending on your income size.
  • No legal difference between you and your business

How Long Does it Take to Open Sole Trader in Ireland

It takes approximately a few days to register a sole trader in Ireland. The time frames can vary based on CRO Procession, and the time needed to collect necessary documents, prepare the application, and finalise statutory docs. 

Top 4 Tips on How to Choose Between a Sole Trader and a Limited Company

Here are a few tips that will help you make a choice between a sole trader and a limited company. If you need more specific advice, talk to our client service expert. We are always happy to help starting entrepreneurs grow. 

Consider Where You See Your Business in Future

In many cases, registering as a sole trader is associated with easy set up and shut down and it can easily go aside with your 9 to 5 job. However, if you’re planning to build a solid brand that will stay around your customers for decades, go for Limited company registration.

Do you know how to incorporate an Irish Ltd? Check our step-by-step guide on starting a company in Ireland.

Consider Your Location

A significant difference between a limited company and sole trader is that the latter option is only available to Irish residents. Thus, if you reside outside Ireland, you only are allowed to set up a Limited company. 

Consider Your Industry

For businesses in the professional services industry, registering as a limited company will give you a more credible image. In addition, large corporations are more inclined to dealing with limited companies which may lead to greater business opportunities. 

Consider Your Income

As a sole trader, all of your income (minus expenses) will be taxed at personal income tax rate up to 55% depending on your income size. All that you use for personal reasons are called “drawings”. Drawings cannot be considered as a tax-deductible business expense and cannot lower your tax bill at the end of the year. As a director of a limited company, you can pay yourself a salary, withhold dividends, and contribute to pension. Your salary is a tax-deductible business expense and is taxed as personal income. 

To Sum Up: Sole Trader or Limited Company

To summarise, let’s outline the key differences between sole trader vs limited company in Ireland in a comparison table.

Sole TraderLimited Company
You represent your businessA company is a separate legal entity
Personally liable for all business’ debtsPotential creditors can only claim against your company’s assets
No legal difference between you and your businessMore security to your personal assets
Takes less time and less money to get startedMore expensive and time-consuming to register
You’re limited on how much you can grow and earn as a sole traderLimited companies are unrestricted on their growth
Sole trader registration is only available to people located in IrelandYou can open and run Irish Ltd remotely as long as there’s an EEA director or insurance bond
Decreased likelihood of receiving tax incentivesMore tax reliefs and benefits for directors
More privacy for your financial informationThe company’s financial accounts are visible to the public
Easier and less expensive to shut downLonger and more expensive to close a company
Limited company or sole trader comparison table

If you’re hesitating on choosing sole trader vs limited company for your business activity in Ireland, don’t hesitate to contact Chern & Co experts for help. Our manager will assist you in defining the best venue for your business in Ireland during the free onboarding call. 

Disclaimer: The content of this page is for acquainting purposes only and is subject to change. It does not constitute any professional advice. No liability is accepted by Chern & Co for any actions taken or not taken in reliance on the information set out in this article. Professional, legal or tax advice should be obtained before taking or refraining from any action

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