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Business Start-ups

Sole Trader vs Company

If you decide to start a business, the first decision you will have to make will be whether to form a company, or trade  as a Sole-trader/Partnership (if more than one person).

Risk/Limited LiabilityTaxationCost and Administration
In theory, if you trade via a company, your risk is limited to the amount of share capital you invested (usually €100 in small companies). However, banks and some large suppliers may seek personal guarantees prior to advancing credit, and in effect this restricts the limited liability benefit. However, the limited liability can still be useful in many worst case situations (so long as the company has traded honestly and filed all of its returns with the companies’ office)
Unless the business is expected to produce profits which can be kept or reinvested in the business (profits which are not taken by directors/owners) then there is little or no tax difference between sole traders and companies. However, if the business does intend to re-invest profits in stock, equipment or retain in the bank, then 12.5% corporate tax rated does help as opposed to a sole trader paying tax of 52% (I.T 41% – PRSI 4% – USC 7%). Professional services companies and companies’ investment income profits are subject to a surcharge which effectively eliminates the benefits of the 12.5% tax rate.
It would be fair to say that operating via a company would incur higher professional fee’s (due to there being higher reporting standards etc) and depending on the type of business you are in, you would expect to pay in excess of €750 per year for to administer a limited company.

Registering for Tax

Regardless of whether you start to trade as a company or a sole trader you need to inform the Revenue Commissioners that you have started trading and request a business tax registration number. This is done by sending the appropriate tax registration form to your local revenue office.

Shortly after registration you may receive a visit or you may request a “New Business Visit” visit from a Revenue official to assist you in operating the tax system.

Registration, Deregistration and switching costs

Generally speaking there is very little cost involved in starting and deregistering as a sole-trader.

“At KPW & CO we do not charge our clients (including new clients) for tax registration services”

However, a company may cost €200- €300 to start, and another €200-€300 to deregister with the Companies’ Office.

It is not unusual for people to start off as a sole trader then incorporate the business at a later stage.

Business Name Registration

Registration of a business name is obligatory if any individual or partnership or any body corporate carries on business under a name other than their own true names.

Its purpose is to make public the identities of those individual(s), partnerships or corporate bodies being the legal entity behind the business name.

Specifically, registration of a business name is required if:

  • An individual uses a business name which differs in any way from his/her true surname. It makes no difference whether the individual’s first name or initials are added. So registration is required if, for example, Mr. John Murphy traded as Murphy Builders but not if he traded as Murphy or John Murphy).
  • A company uses a business name which differs in any way from its full corporate name.
Forms to be completed

To register a business name, submit one of the following forms, along with the registration fee (€40 for paper filing/€20 for electronic filing), to the CRO within one month of adopting the business name:

  • Form RBN1: for an individual
  • Form RBN1A: for a partnership
  • Form RBN1B: for a body corporate

** “At KPW & CO we do not charge our clients (including new clients) for Business Name registration services”
** Client is liable for CRO fee of €20

Certificate of registration – Bank account in trade name

The registrar issues a certificate of registration for each business name registered. A copy of the certificate of registration must be displayed in a conspicuous position:

  • In the case of a firm or individual, at the principal place of business and in every branch, office or location where the business is normally operating.
  • In the case of a body corporate, at its registered office in the State and in every branch, office or place where the business is normally operating.
  • You will need the certificate of registration together with I.D in order to open a bank account in the name you intend trade as. Companies will also require a signed copy of the memorandum and articles of association (see section on company formation).