Thinking of Incorporating a Limited Company?
Updated: Apr 17
Alot of clients ask us about whether they should incorporate and conduct their business through a limited company as opposed to operating as a sole trader. This post looks at the advantages and disadvantages of incorporating a Ltd company.
A limited company is designed to offer legal protection to the owner of the business as it limits their liability to the share capital they subscribe. Directors however will need to be mindful of companies laws as these will instead be applicable. The main point here is the company becomes a legal entity which is distinct from the individual.
One misconception clients have is that there are tax benefits to incorporating a limited company. Although the rate of corporation tax is 12.5% directors will still be liable to pay PAYE income tax when they withdraw cash from the company. As the director will now be an employee of the company the company will also need to pay Employers PRSI on wages paid to directors.
The final disadvantage is that limited companies will incur higher accountancy fees as additional returns etc. will be required.
In certain situations there can be tax advantages to trading through an incorporated company. Some tax benefits include more liberal treatment of expenses for tax purposes. Limited companies are able to deduct non receipted expenses for travelling whereas sole traders are required to show receipts.
Retirement relief will be available to company directors in some specific situations. If applicable this can give directors an opportunity to get cash out of a business without paying tax.
Incorporating a limited company can make it easier to get investment into a business and will give tax benefits to investors through the business expansion scheme.
Trading through a limited company can provide advantages to individuals impacted by the high income earner restriction.
Please get in touch if you would like to explore your options and assess if incorporating a limited company is the right thing for your business.