A Company (54.55%)
A Sole-Trader (27.27%)
Entrepreneur looking for the next venture (9.09%)
None / Does Not Apply (9.09%)
Since there has been many posts from new start-ups doing the rounds between sole-traders and forming companies, thought I would throw my hat into the ring to help out.
I don't pretend to be an expert on the following but only from my own experience in a short version here. Maybe other legal / accounting experts here on boards.ie will help clear anything up for people here looking to start-up and get our country back on track!
Starting a New Business - Sole-Trader vs. Company
When starting out on your new business venture, there is a few things to take note in general:
The Legal Side :
Choosing to start up as a sole-trader or forming an incorporated company is not as daunting as it first may appear. The key differentness here is : as a sole-trader there is less legal requirements to uphold, you're in complete control of your business but there is less protective measures such as limited liability. If your business fails for whatever reason, you will be fully liable for costs and can be sued personally.
There is extra legal work to form a corporate company including extra costs and requirements to file your year-end accounts of which a limited version of these can be obtained publicly. You will need one other partner / Director to form your company but shareholding can be spread in any amount agreed at start-up. A company protects yourself from being sued or to sue by just yourself, and gives greater protection to your copyrights plus better success in seeking loans from a Bank who view companies as less risk when compared to sole-traders. With a company you are protected with limited liability (depending how your setup is done) and while there is extra costs involved, a company is the best way forward from a legal stand point.
A company is treated as a legal person in its own right.
The Accounts Side:
As a Sole-Trader, the more revenue you make, the higher your tax bill will be as most gov. departments treat sole-traders the same (not all) as all your expensive's and revenue is tied up into one bill, you! While you can claim a wage as a sole-trader, any profits you make will be treated the same as if it was all one wage. This is why when a young business grows from starting off as a sole-trader, it is then best to be formed as a company to help protect your revenue from going all the way to the tax man (this is does not mean hiding it now .. only sole-trader vs. company view!).
A company has to pay tax on revenue, on profits but is generally much lower than a Sole-Trader, while you can claim a wage as you are treated as an employee of your own company. Companies have to file their accounts every year and part of the accounts (summary) goes on public record and a Annual General Meeting (AGM) must be held every year with all Directors plus shareholders with 21 days notice. Closing a company will also cost you, which is something most start-ups don't know, so make sure you factor that in when deciding to start a brand new company.
How Do I know If Either Option is Right for Me ?
There is many pros & negatives between both options of sole-trader vs. company for a start-up. If you are looking for funding, a company is the best way to move forward to in general, attract investment, protected your copyrights, get better support from banks and protect yourself from being sued personally (but you can still be sued personally in a company).
A sole-trader will allow you greater freedom, more control and direction of your new business and if it does not work, you will not be affected unless you owe large amounts of money to another party. Sole-traders are best when you're not sure if this new venture will work and if it does ,form your company then.
Draw up a SWOT (Strengths / Weaknesses / Opportunities / Threats) analysis of your new business and see which boxes tick for you in starting off as a sole-trader or incorporated company.
This post is only my personal views on this matter and by no means or represents acts legal / accounting advice, please consult your Lawyer or / & Accountant for setting up your new business!
Otherwise I hope this post gives you a small insight to a Sole-Trader vs. Company dilemma.
Lot of that is wrong
Copyright/protecting your idea - sole trader or company has no bearing on this
Bank financing - sole trader or company has no bearing on this
Limited liability - most banks insist you sign a personal guarantee now, so this issue has very little importance
If you are comparing sole trader vs Limited, you will most like go for single member company, this is less work in term of holding aghs etc.
I choose a Limited company.
- I will be selling the company eventually, less ability to plan for tax and other stuff with sole trader
- I have investors who are share holders, can't do that with sole trader
- Getting grants off EI needs to be a limited company
- Better pension planning and expenses as a director rather than sole trader
- Easier, cheaper to defer payment and build up a cash reserve with a limited company
As I said, just trying to help. Thanks for clearing that up Ken
Just a note on EI, you can get one as a sole-trader but most of the time they do want companies for it.
Thanks a million very helpful thread!
wizard.......a structure for the business is dependent on a number of factors.....individuals involved, type of business, where the business is based - IRL/EU, type of investment involved.........is not as simple as ...."you are starting a business.....companies are good"
basic point.....ensure you are getting the best advice from trusted people.....