One trading option for a business is to operate as a limited company. This will provide access to a number of tax planning strategies and limited liability status. We can help you set up your limited company quickly and cost-effectively and from there we can help you manage your obligations. However, before you decide to trade as a limited company you should ask yourself if it is definitely the right option for your business.
Although there is perceived prestige in operating as a limited company you will lose some of your privacy – directors’ and shareholders’ personal details and abbreviated accounts have to be filed and are open to public scrutiny.
A limited company is a distinct legal entity that is able to enter into contracts in its own name. The fact that the company is a separate legal entity from its owners is very important as it means that all the company’s liabilities are the responsibility of the company – not that of the directors and shareholders! The only exception is if you, as director of the company, offer a bank or other creditor a personal guarantee to repay the company’s debt. In that instance you then become personally liable to repay the debt if the company is not able to.
What are the pros and cons of incorporating your business?
Advantages of a Limited Company
Limited liability, the company is a separate legal entity and this can protect your personal assets from business creditors if for any reason the company is unable to clear all of its debts and has to cease trading. Operating, as such, is especially useful if there are significant risks associated with your business activity. Due to the Limited Liability companies also look like a more secure prospect to investors.
Status, the business artificially looks bigger and more professional.
Succession of shareholders is more straightforward.
Tax efficiency, trading as a limited company can be more tax-efficient due to dividends not attracting PRSI and the notional tax credit.
Disadvantages of a Limited Company
More cost, the professional costs for setting up the company and for preparing company accounts and tax returns can be higher than those you would expect to pay if you were self-employed. There are then additional costs involved with various Revenue requirements.
Companies must file their accounts and various other documents on public record with Revenue, so companies have less privacy than unincorporated businesses.
As a general principle, you tend not to have ‘mixed-purpose’ expenditure in a company; it either is for business purposes; or it’s not. And recognizing mixed-use assets or expenditure can trigger tax charges on the relevant employees/ directors.
Any losses generated by a company, belong to the company. Therefore, they cannot be utilised by the directors or shareholders.
Audit requirement, if your company exceeds certain limits, or is in a particular trade sector, an audit may be required thus incurring further costs. We can advise on this, but most small companies will be exempt from annual audits.
Needless to say, choosing the right business entity is not always an easy decision.
We are happy to discuss your individual requirements and undertake a proper risk assessment, thus enabling you to decide on the best way forward for your business. Whether you proceed as a limited company or as an unincorporated business, our assessment will indicate the most beneficial tax arrangements available to you and help you to make sensible choices about how you can minimise your commercial risks.