Starting up your business in Ireland is a hectic time and it can be difficult to ensure all the legalities are covered.Depending on the type of business you have in mind, you may set up as a sole trader, partnership, limited partnership or limited company. A lot will depend on your appetite for risk and the type of business you are conducting. It is important to know the rules and regulations that govern your business and to take advice from a solicitor or accountant.
The simplest way to proceed is as a sole trader. You will only have to register for tax and prsi with the Revenue Commissioners. You may decide to adopt a trade name in which case you should register it in the companies office as all business names must be registered. This will also help protect your name from being used by your compeditors.
If you have a partner then you should have a partnership agreement drawn up by a solicitor. Otherwise your relationship with your partner is governed, whether you like it or not, by the Partnership Acts. You and your partner will be jointly and severally liable for the partnership debts and responsible for running the business.
A Limited Partnership is very similar to the General Partnership except that there is at least one general partner, who is personally liable for all debts of the firm, and one or more limited partners. Like shareholders of a limited company, limited partners of a Limited Partnership are only liable for debts of the firm to the extend of their contribution to the partnership. A limited partnership is more suitable for day to day business activities rather than for holding assets. There is usually one general partner and one or more limited partners. A limited company or a natural person may be a partner. A partner may contribute by way of cash goods or services.
This is a separate legal entity and is registered in the Companies office. It has shareholders and they appoint directors to run the company.
- • The main advantage is limited liability. If the company gets into difficulty then the shareholders are only liable to the amount they paid for the shares. In other words their personal assets are protected.
- A company will pay corporation tax in Ireland on it’s profits at a rate of 12.5%. This is a very low rate and the potential to retain profits in the business is significant.
- The directors will pay corporation tax in Ireland at normal rates only on the salary drawn from the company. However a sole trader will pay tax on all profits of the business even if they are not all drawn down as wages.
- A Company may also avail of generous corporation tax advantages in Ireland in relation to pension funds whereas a sole trader may only avail of tax relief on a pension contribution of between 15% to 40% of annual earnings.
- • A Company will also have the option to offer stock options or other share schemes to motivate staff.
- Shares in a startup Company may be divided tax free amongst family members to avoid possible future gift or inheritance tax exposure if the shares acquire value due to the success of the Company.
- There are strict rules and regulations prescribed by the Companies Acts which must be followed and the duties of directors can be very onerous.
- A Company in receipt of rental or investment income may be liable to a surcharge if the income is not distributed within 18 months of the end of it’s accounting period.
- Disposal of property in the Company may give rise to Capital Gains Tax to the Company and a further tax to the Shareholders when ultimately paid out to them.
- A directors salary will be subject to PAYE and PRSI on a monthly basis, whereas in the case of a sole trader it will be once a year.
- Administration costs for running a company will be higher.
- Transfer of assets from a sole trader to a company may be subject to CGT however relief is available if the goodwill is also transferred and shares are issued to the transferror.
- • Assets being transferred on which capital allowances have been claimed may be subject to balancing allowances or charges. This is where the asset is sold for less or more than the corporation tax value in Ireland.
How your business is taxed depends on whether it is incorporated as a company. If it is a company then it is liable for corporation tax in Ireland. . If your business is not incorporated you are considered to be a sole trader and you pay tax under the self-assessment system. Further information on corporation tax in Ireland is available on selfemployedsupports.ie and in the Revenue booklet IT48 Starting in Business (pdf).
Start-up companies in Ireland: New companies may get tax relief on the first 3 years of corporation tax and the value of the relief will be linked to the amount of employers’ PRSI paid by a company in an accounting period subject to a maximum of €5,000 per employee. In the Finance Act 2012 this tax relief has been extended to companies that commence trading in 2012, 2013 and 2014.
If you are self-employed you pay Class S social insurance contributions. There is a guide PRSI for the Self-Employed - SW74 on the website of the Department of Social Protection. If you are an employer and you create new and additional jobs in 2012 you may qualify for an exemption of employer’s PRSI for those jobs.
Employment rights and employers' obligations
If you are starting up a business and decide to recruit staff you must register for PAYE and PRSI with the Revenue Commissioners. You can find information about your obligations and duties as an employer and what are the rights of employees on selfemployedsupports.ie. There is a guide for employers who are starting a new business with paid employee. You can also read our documents on topics such as the minimum wage, social insurance (PRSI), leave and health and safety.
See our resources page for a comprehensive list of valuable sites to visit for useful information.
So why not get a no obligation fixed fee quote now. You could save a lot of money. If you have questions, why not call or email us now without obligation and we will be happy to answer your queries without charge.
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