When you set up a business, there are many things to think about. One of the first things to think about is how you structure the business. This typically means how you are going to describe the legal status of your business.
There are a variety of ways to structure a business in Ireland and there are advantages for each option. Choosing a structure depends on your business, how you plan to run it and the future plans for your business.
Ideally, you should choose the structure of your business when you set it up. In this regard, the way you are taxed will be clear and there are costs involved in changing structure. However changing structure at any time is possible.
In this article, we’ve chosen the three most common business structures that are used in Irish businesses today.
1. Sole Trader
A sole trader is the simplest way to get started as a business owner. You can get started as a sole trader at any time as there are few compliance requirements that you need to fulfil. The first one is a setting a name, and ideally register that name with The Companies Registration Office,eg you can be Joe Blogs Trading as Blogs Manufacturing . Legally your name is the business name but on your business cards, website etc, your business name is Blogs Manufacturing.
Your PRSI number is your tax number because business is not treated differently to your personal affairs. You need to keep separate business accounts from your personal accounts. Any profits made are taxed at the normal tax rates of 20% and 40% plus USC and PRSI contributions.
However as a sole trader, you are personally liable for all debts incurred by the business.
You can move from a sole trader to a limited company at any time.
2. Limited Company
A limited company is the most common form of structure in Ireland. It means that the company you create is limited by share capital or shares. You can set up your company with a minimum share capital cost of €1, making it easy to create a limited company. You don’t need millions in the bank.
There are several of limited companies eg public limited companies (PLC) , limited by guarantee (CLG) but the most popular is a private limited company. This is the one that you would set up if you are setting up a new business or if you make the decision to separate you from your business as a sole trader.
The burden of responsibility grows with a limited company. You must register the company with the Companies Registration Office (CRO). Your accounts must be returned every year to the CRO. Your accounts may have to be audited by a registered auditor however there are exemptions for small companies.
A private limited company can have multiple directors, but you can also have just a single director plus a company secretary..
There are many of advantages to having a limited company, one of which is that a shareholders liability is limited to the value you have contributed to shares in the company. It separates you, the business owner, from the business. Both you and the company are separate legal entities.
Profits made by the company are taxed at corporate rates. You as business owner or shareholder can take money from the company as an employee by way of a salary or by way of dividends as a shareholder.
The third option to structuring a business in Ireland is a partnership. If you go into business with someone else with the intention of making a profit and you don’t want to create a limited company, then a partnership is the best way forward.
A partnership can be formed with a simple agreement, which is strongly advised. Unlike the limited private company, the partnership will not be a separate legal entity. All of the partners will be jointly and personally liable for any debts or liabilities occurred within the partnership.
In essence, a partnership is two or more sole traders coming together to pool resources and, collectively, build a better business or grow a business quicker. In terms of tax, you are both liable to pay tax on your share of the partnership profits. The partnership itself is not liable to tax on profits
The agreement that you create should contain the rules by which you will work together. Many friends have set up with a partnership but it’s good to start from the beginning as you mean to go on. Who will be responsible for what? What percentages of profits will you both take etc should be included in the agreement.
In summary, there are more ways to structure a business but these three are the most common. If you need help with setting the structure or need more information, please get in touch with John at TaxPlus Accountants. He is here to help.
TaxPlus Accountants are accountants who serve the North East of Ireland. They bring simplicity to your accounts with proven results. They provide a complete range of accounting and book-keeping services to businesses operating a manufacturing, retail or service business.
Call us on 041 9844525 or email email@example.com