Setting up your own business

WHEN starting a new business the big question which all Entrepreneurs will ask themselves is whether to run their business as a sole trader or as a company. There are no hard and fast rules. As a rule of thumb, if you expect your business to earn substantially more money than you will need to live on, then there could be an argument for incorporating the business and ploughing the excess profits into growth and expansion. However, each case will need to be looked at on its merits. Some pros and cons of both options are listed below:

WHEN starting a new business the big question which all Entrepreneurs will ask themselves is whether to run their business as a sole trader or as a company. There are no hard and fast rules. As a rule of thumb, if you expect your business to earn substantially more money than you will need to live on, then there could be an argument for incorporating the business and ploughing the excess profits into growth and expansion. However, each case will need to be looked at on its merits. Some pros and cons of both options are listed below:

Sole Trader

Advantages:

No requirement to file annual accounts (proper books and records must be kept)

Lower legal and compliance costs

Losses can be set against other income (including spouse’s income)

No winding up costs

Disadvantages:

Unlimited Liability

Higher personal rates of taxation on profits

Strict rules regarding deductibility of expenses

Company

Advantages:

Limited Liability

Lower tax rate

Tax efficient Pension contributions can be paid by the Company

Trading losses can be carried backwards.

SEED Capital relief may be available (refund of income tax for previous years)

Disadvantages:

Annual accounts need to be filed with CRO

Personal guarantees may be required from lenders

Tax Surcharges on certain undistributed profits

Higher personal tax rates applied to dividends

Restrictions on Loans to directors

Costs of winding up company

There are also important legal and insurance considerations to think about when making the decision. By arranging an initial consultation with your local accountant or Registered Tax Consultant you can get professional advice as to which option will suit your circumstances. In addition, your accountant/registered tax consultant can take care of all your taxation, financial and CRO compliance requirements thereby freeing up your time so that you can focus on growing your business. If you are considering starting out in business for the first time there is also some excellent information available to you on the website of your local County and City Enterprise Board www.enterpriseboards.ie

Declan Browne, CPA, AITI, MIATI