Advantages of incorporating as a private limited company in Ireland

missmaggs

Hi folks, I am not sure whether I have chosen the right forum for my query, but I hope somebody can help me...

Here's the story- I am doing an assignment for college and I have to present the advantages and disadvantages of incorporating as a private limited company in Ireland...maybe it is a simple task for you guys, but I'm not exactly business-minded, so I don't even where to start....

could somebody give me a hand, or a few suggestions with this one??

fmcc

Hi Miss in reality very little advantge as before you were limited in that all you could lose was the investment you made in the limited company but now nearly everyone will ask for a personal garuntee so limited liability is not such a big draw.

Dabko

limited company is just putting 3 fancy letters after the name of your business.

if you want to start a business in ireland, find one where you can work on your own, for yourself as a sole trader. Register as self employed & declare you taxes annually. Cut out all the crap.

Or study the benefits of mathamatics in online sports gambling, start with an initial investment of approx 2k and start adding 2% to you bank (compounded) every day. Within no time you will have accumalated quite a large amount of income and guess what - no tax to be paid on winnings from gambling!
Move to france, continue your career and be happy!

Sorry, paper work really makes me wonder "Why bother!"

FusionNet

Hi Maggs,

I can only think of disadvantages, i hope this will help anyways.

You do not own your business like you do as a sole trader

You can not take money from the business like you can with ST

You can not close it easily

tax and accountant affairs are more difficult

More laws in regrads to filing returns, fraud etc

you can not use the money in a ltd company as if it is your own, in other words if you invest in something stupid and you go under with bad debts the OCE (office of corporate enforement) could crimianlly charge you for wreckless trading

Oh oh I have one little Advantage, you pay less tax.. But I was told once by a very wealthy person that he pays €300,000 a year in income tax and he remains a sole trader, he does this because everything else after tax is his. He can go into the bank, take out a million and blow it. You cant do that in a Ltd (not easily) ... By the way this guy was in accounting!!!

Long live the Sole Trader, though the Government should give us a break on the all Tax levels, I mean 40% is a bit slack!!!

thecleverone

Advantages:

• Company seen as separate legal entity to those that own it
• Limited liability
• Protection of Limited Company Name i.e. no one else can register a limited company using that name
• Interests & obligations of management are defined
• Low Corporation tax rate of 12.5%
• New incentive introduced in budget, on waiving corp tax (up to €40,000) for first 3 years for some new startups
• A limited company has a greater ability to raise finance by the issue of shares (Seed Capital Scheme)and also under the BES Scheme (Business Expansion Scheme).
• Shareholders in a limited liability company are only liable to lose the share capital they subscribe.
• There may be a greater degree of business credibility of trading through a limited company.
• There are clear and defined rules as to how the company must operate (memorandum & articles of association).
• Grants will only be issued to Limited Companies and not sole traders

Disadvantages:

• Setting up costs more (between €300-€500)
• Cannot use money freely as if it was your own
• Filing accounts with CRO every year (can't see a prob with this myself as they'll be prepared for Revenue anyway and MOST companies can avail of the audit exemption)
• Onerous/ legal responsibilities on company directors and those who run company
• Can't go it alone... Statutory requirement for a minimum of 2 company directors
• Your abridged company accounts are available for public viewing
• Double taxation... Income tax on salary, corp tax on profits
• Closing down requires more formalities than setting up

Thats all i can think of for now.

seven-iron

Double taxation... Income tax on salary, corp tax on profits

thecleverone is obviously not a tax accountant.

That disadvantage as you call it is an advantage and is the reason why many people transfer from sole trader to ltd status. All profits a sole trader makes are liable to income tax. That means if you make profits of €100,000 but only require €50,000 to live off you are going to pay income tax on the full 100k. Where as if you incorporate you can just pay income tax on the €50,000 you pay yourself, and the remaining is only subject to CT (@12.5%) as opposed to the higher rate of income tax!

Your abridged company accounts are available for public viewing

Not necessarily, Dunnes Stores are a ltd company and no one has seen their accounts. You must mean having a PLC status.

Cannot use money freely as if it was your own

Yes you can as long as if its your company.

You should give facts instead of copying and pasting "cleverone"

swanvill

FYI Dunnes stores uses an unlimited holding company, which prevents the public from seeing what it and the subsidiary accounts contain, perfectly legal and above board. Group structures are often used to hide levels of profits in business and shield what the top guys are earning from the workers.

Regarding the OP, a lot of what the cleverone posted would be typical advantages/disadvantages for ST v Limited liability. It depends what stage the business is at, if start up and making losses and the owner & his/her spouse have other income, then ST is advantageous due to the transfer of tax losses. While LTD is handy if you wish to dispose of the business
1) As you can sell shares to the buyer
2) Convert retained earnings in shares which the company can cancel thus creating a capital gain (subject to rules obviously)
3) Owner can make himself redundant and receive a tax free lump sum

If the business is very profitable, then LTD has an advantage where the amount that can be paid into a pension scheme is not subject any limit unlike the restrictions applied to a person.

thecleverone

thecleverone is obviously not a tax accountant.

No, nor did i ever claim to be. My understanding is that is a director of a limited company takes a salary, income tax has to be paid on that. Any monies that are not used up on salaries, expenses, purchases i.e. any profits left over, are subject to corporation tax. Whether its an advantage/disadvantage obviously depends on how much profit will be left at the end of the year. Please feel free to correct me if i'm wrong, as i'm always open to correction.

Not necessarily, Dunnes Stores are a ltd company and no one has seen their accounts. You must mean having a PLC status.

We are talking here about "Limited Companies". You're simply confusing the matter by talking about PLC's, which are totally different. The poster above me is totally right. Dunnes Stores is not a limited company, but rather an Unlimited Company. Unlimited companies by their nature, are not obliged to file any financial statements with CRO although there is nothing restricting them from filing them if they so wish. It you go to www.cro.ie/search and put in the name of any limited company you are interested in, you can obtain a copy of their last set of filed accounts for a fee of about €2.50.

Cannot use money freely as if it was your own
Yes you can as long as if its your company.

Not true. You can use any monies allocated to you as salary for any purpose, but you certainly could not go and purchase a private house, or pay for a holiday out of monies in the bank account of the limited company. A limited company, is seen as being a separate legal "person" or "entity" from the people that run the company, so taking money out of the bank account for personal use, can be likened to you withdrawing monies from another individuals bank account. Not a great example i know, but its the only way i can think to describe it.

You should give facts instead of copying and pasting "cleverone"

I resent that. I gave freely of my time and put together my own list to help out the OP who was looking for suggestions of advantages/disadvantages. It took me a while to put together that list and it was far from "copied and pasted" as you suggest.


Jees, look what i get for posting an opinion!

seven-iron

You gave a very solid summation and I do appreciate your time and effort, especially in your reply too. It was mainly the double tax issue I wanted clarification on.

2) Convert retained earnings in shares which the company can cancel thus creating a capital gain

????
could ya explain that one

lemeister

seven-iron wrote: »

thecleverone is obviously not a tax accountant.

That disadvantage as you call it is an advantage and is the reason why many people transfer from sole trader to ltd status. All profits a sole trader makes are liable to income tax. That means if you make profits of €100,000 but only require €50,000 to live off you are going to pay income tax on the full 100k. Where as if you incorporate you can just pay income tax on the €50,000 you pay yourself, and the remaining is only subject to CT (@12.5%) as opposed to the higher rate of income tax!

So what happens when you eventually want to take the €50,000 out of the business in later years.....you pay income tax on it, thereby ensuring you pay double tax on it, rather than avoiding it.

The only way to avoid paying tax on the double from a ltd company is to take all profits as a salary each year (ie. the company just breaks even) and therefore not pay the 12.5% CT at all, only income tax on the salary. This obviously only considers the taxation benefits and not other factors such as leaving profits in the business to expand it, etc.

swanvill

I think we have drifted beyond the OP original request.

Without Predjuice - For general information purpose

Reorganisation - It is possible to convert the retained earning into ordinary share capital, which will have to be distributed to the shareholders in accordance with their shareholding. Then the company will cancel those shares through a share buyback, thus putting a capital gain into the hands of the shareholder and as you know avoiding Income Tax, Income Levy & PRSI. To do this there are several rules one being, that it is a once off and you can be taking the mickey every year

Building Excess Profits - An example used was €100k profits while director takes out €50k salary, if he wants to withdraw the other €50k through dividends then he will suffer IT & CT. However if he wants to put that €40k into a pension contribution for him he can, there is no limit to funding of pension schemes by a company (pension contribution is 80% of salary) but as an individual the max he could claim would be 40% if over 60. All tax free by Corp tax / Iincome Tax.If he chose not to go the pension route there are other ways he could benefit the bottom line of the company, thus the value of the company & his/ her shareholding.

Double Tax - Always a risk with the company especially when you hold assets through a company (with the one gain being subject to CGT twice, once on asset disposal, then again liquidation of the company) there can be benefits with stamp duty via the differences between shares versus property. Similar you can always just sell the shares in the buisness, which privately owned companies can be tricky to value

missmaggs

Very helpful guys! thanks a lot, seriously. I've got plenty to talk about for the paper now

missmaggs

thecleverone wrote: »

I gave freely of my time and put together my own list to help out the OP who was looking for suggestions of advantages/disadvantages. It took me a while to put together that list and it was far from "copied and pasted"

Really appreciate it thecleverone! extremely good points you made and very helpful. thx