Should I Register as a Sole Trader or Limited Company?

Probably one of the most common questions we receive from our new clients. But not to worry, we are on hand to advise you.

Registering as a Sole Trader

Sole traderships are quite common in Ireland. It is very easy to establish yourself and there is much less paperwork involved compared to a limited company. It is free to set up and start trading and you don’t have to submit financial statements to the Companies Registration Office (CRO).

However, as a Sole Trader, the liability of the business lands on your shoulders. You are personally responsible for all debts. So any personal assets like your home could be at risk if you have significant creditors. Also as a sole trader, you will have to submit tax returns annually. All profits earned will be liable for income tax ( 20% and up to 40% ).

From an image point of view, trading as a sole trader may give the impression that you are a small business.

Registering as a Limited Company

Setting up as a limited company requires a bit more work than a Sole Trader. The process involved registering with the Companies Registration Office (CRO). You are registering a legal entity and all liability is limited to the assets of the company. So for example, if you find yourself in hot water with a client, your personal assets cannot be pursued, well only in extreme circumstances. Once registered you are then obliged to file returns with the CRO. You will also have obligations to Revenue as well.

Despite there being more paperwork involved with a limited company, there are also benefits such as the low corporation tax rate of 12.5%. There are also some tax relief schemes which you may be eligible for. Also trading as a limited company gives an element of gravitas that isn’t apparent as a sole trader.

You can easily switch to a limited company from a sole trader at a later date.

So which is right for you?

Registering as a Sole Trader is more likely the better option if you are unsure of what your income will be or if you feel it will not be a significant amount. You can register using your own PPS number with Revenue and if you need, you can purchase a business name. Remember you need to file your income tax return each year (31st October).

If you have personal assets that you want to protect and expect to have high earnings then forming a limited company is the best option for you. There is more paperwork involved, but you will be able to avail of the low corporation tax rate.

If you decide to go Sole Trader, there is no issue with changing to a limited company at a later date.

Need help deciding?

Just drop us a line and we can talk you through what the best option is for you and your business. We offer packages for both limited companies and startups.