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Should I start a business... small studio advice

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  • 09-06-2012 5:26am
    #1
    FewFew
    Registered Users Posts: 12,746 ✭✭✭✭


    I'd appreciate some advice on setting up a business.

    I've read through selfemployedsupports.ie and have an idea of what's involved, but I'm curious about the reality of it all.

    I'm in the last stages of a tech masters and I'm looking to start creating interactive books and games once I'm done.

    The usual configuration for this sort of work is a two or three person team (usually one doing programming, one doing art, one doing audio or narrative etc.)

    I have one other person on-board at the moment, with the possibility of a second. Our first product won't be ready until Christmas, so there doesn't seem much of a rush there, but as gaming and apps are quite the "in" sector at the moment (with the Government making specific reference in their plan for jobs etc.) I'm quite eager to try secure some grants with a prototype. Similar projects from the previous year of the course were able to secure some funding, and based on market-research and user-testing, I'd expect us to perform as well.

    My major concern is how owning a business will affect my ability to earn elsewhere. I'll have to find other sources of income til this time next year, at the very least. How would being a self-employed person affect me if I got a part-time PAYE job? If I'm registered as self-employed for one company, does it also cover me for contract work I might do on my own?

    Finally (and I appreciate it if you made it this far) if we're going down the business route, should we go for a partnership or a limited company?
    Before I started to read up on it, I always assumed I'd go down the limited company route, but now corporation tax on income on top of my own earnings (if I understood that right) seems like a major pain. I understand I'd be insulated from risk, but in an industry where we don't have any creditors (just rent at the moment) what are the risks? Add to that I'm a broke student with nothing to my name :pac:

    Oh, and one more I just thought of, as we'll be selling online and therefore internationally I guess (various app stores etc.), does that have any major effect on the way we should approach a start-up

    Thanks for any advice you can give, always find I learn most from the voice of experience.


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    #2
    PCPhoto
    Registered Users Posts: 6,584 ✭✭✭PCPhoto


    if there are more than 2 of you i would suggest ltd company is the way .... mainly because you have limited/less liabilities if it fails and creates a debt which you cannot afford.

    if you are a sole trader you can be held liable for the debts.

    (of course this is all thinking about the negative - its quite possible that it may be successful and you wont have debts)

    if you are self employed and get some PAYE work - you declare all the income and tax paid at in your returns at the year end so its all declared nothing is hidden from revenue and everything is ok. (My understanding of it)

    if you are a company director (Ltd company) and get some PAYE work - you do the same - as long as everything is declared to revenue let them correct a mistake if there is one..... give revenue a call if you are confused about it, they are approachable.

    If you are considering international .... then make sure you mention that and explain that to enterprise boards when applying for grants.


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    #3
    FewFew
    Registered Users Posts: 12,746 ✭✭✭✭FewFew


    In terms of ltd company versus sole-trader/partnership, I took the tax situation to be that a ltd company would be taxed 12.5% on the company's income, whereas a partnership would be based on the individual's income. So if my company broke even, if it was ltd I'd still have to pay corporation tax, but if it was a partnership I'd have to pay nothing because I didn't earn any money... or have I taken that up completely wrong?


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    #4
    dbran
    Registered Users Posts: 2,094 ✭✭✭dbran


    Fewcifur wrote: »
    In terms of ltd company versus sole-trader/partnership, I took the tax situation to be that a ltd company would be taxed 12.5% on the company's income, whereas a partnership would be based on the individual's income. So if my company broke even, if it was ltd I'd still have to pay corporation tax, but if it was a partnership I'd have to pay nothing because I didn't earn any money... or have I taken that up completely wrong?

    A limited company pays corporation tax on its profits. Profits are determined after deduction of directors salaries. So you would not have to pay corporation tax on anything that you have already paid out as a salary. However if you leave profits in the company then they will be liable to pay corporation tax at 12.5%. This may or may not be a bad thing.

    Contrast this to a sole trader or a partnership. You pay income tax on the profits of the business. In this case there is no deduction for what you withdraw from the business as a wage. This is just a repayment of capital. So if you are going to be earning more money then you need to live on then go limited company and if not probably stay as a sole trader/partnership.

    I would also avoid partnerships at all cost. All the partners are jointly and severally liable for the debts of the partnership so you can have a situation where one partner can run up debts in the name of the partnership and you as fellow partner will have to pay them if he does not.

    Regards

    dbran


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    #5
    FewFew
    Registered Users Posts: 12,746 ✭✭✭✭FewFew


    dbran wrote: »
    A limited company pays corporation tax on its profits. Profits are determined after deduction of directors salaries. So you would not have to pay corporation tax on anything that you have already paid out as a salary. However if you leave profits in the company then they will be liable to pay corporation tax at 12.5%. This may or may not be a bad thing.

    Contrast this to a sole trader or a partnership. You pay income tax on the profits of the business. In this case there is no deduction for what you withdraw from the business as a wage. This is just a repayment of capital. So if you are going to be earning more money then you need to live on then go limited company and if not probably stay as a sole trader/partnership.

    I would also avoid partnerships at all cost. All the partners are jointly and severally liable for the debts of the partnership so you can have a situation where one partner can run up debts in the name of the partnership and you as fellow partner will have to pay them if he does not.

    Regards

    dbran

    See, I assumed it would be profit, but whatever government website I was reading off had it down as 12.5% off income (which I took to mean all income, regardless of expenditure.) That's grand, the way I interpreted it was a bit mad.

    So a ltd company that pays all its profits to the directors is in pretty much the same tax boat as a sole trader?


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