Setting up a partnership or not?

Axwell

Just wondering if someone could shed some light on the best way to go about this.

Basically myself and 2 others are looking at setting up a business together. It will be providing a service (web/graphic design) so theres no products or any of that sort of thing.

Initially I was going to set it up as a sole trader and then sub contract the other 2 who are also registered as sole traders. However if I am correct that would mean i would have to pay tax on the initial income from any job and then when I pay them they would also have to pay tax on what I give them.

I then looked into setting up a partnership instead as all 3 of us would be under the one business formation.

Tax wise what are the implications here on money taken in by the business?

What would be the best way to go about setting up a business for the 3 of us.

smcgiff

Under your initial proposal you would deduct the cost of the services of your two subcontractors (plus other costs) from your revenue before calculating the taxable profit. You would also retain 100% ownership/control of the business.

You could even employ them instead of contracting them, but whatever/whenever you pay them you'd have to operate a PAYE tax system, and pay employers PRSI.

Under a partnership your taxable profit would be Revenue less expenses. The profit would then be apportioned in proportion to each partners' % ownership. You'd have to draft up a partnership agreement to state such and other rules of the partnership (or the archaic partnership agreement applies).

Each partner would then look after their own tax affairs.

You could also form a company (which would cost anything from €175 to €300 initially. A company would offer limited liability, which is much safer than a partnership.

ResearchWill

Set up a limited liability company, partnership is way to risky especially in the current climate. Remember each partner can be personally liable for the actions of the other partners in the business.

Axwell

So in case 1 I could earn for example €500 for a website, pay them their share out of that e.g. 150 each and then only have to work out my own tax on the €200 thats left?

So if I was to basically split everything 3 ways then we would all end up paying the same tax when looking after our own taxes?

Just trying to keep things as even as possible.

I am just reluctant to go with the whole company formation as we are just testing the water with it so to speak. We are going to give it a go for a few months and see how it works out with regards to getting work in etc. We are all currently doing a masters and working on our projects to the end of the year so we decided to test the waters now before we finish up and if its working out keep it going.

What are the requirements and legalities of going the limited liability company? How would it work out as regards tax and all that?

Cheers for replies.

smcgiff

Axwell wrote: »

So in case 1 I could earn for example €500 for a website, pay them their share out of that e.g. 150 each and then only have to work out my own tax on the €200 thats left?

Less other expenses I'm sure you could come up with. Telecoms, hosting, travel, printing costs etc

Axwell wrote: »

So if I was to basically split everything 3 ways then we would all end up paying the same tax when looking after our own taxes?

Yip* - but be careful with the split. In the second scenario you personally come out with €33.33 less

If it's relatively small your personal tax credits might cover your profits - and ye might only have to pay a small USC tax.

Re company - agree - worry about that when/if it takes off.

* each partner's ultimate tax liability will depend on their own personal circumstances.

ResearchWill

Axwell wrote: »

So in case 1 I could earn for example €500 for a website, pay them their share out of that e.g. 150 each and then only have to work out my own tax on the €200 thats left?

So if I was to basically split everything 3 ways then we would all end up paying the same tax when looking after our own taxes?

Just trying to keep things as even as possible.

I am just reluctant to go with the whole company formation as we are just testing the water with it so to speak. We are going to give it a go for a few months and see how it works out with regards to getting work in etc. We are all currently doing a masters and working on our projects to the end of the year so we decided to test the waters now before we finish up and if its working out keep it going.

What are the requirements and legalities of going the limited liability company? How would it work out as regards tax and all that?

Cheers for replies.

The advantages of limited liability is just that you only risk what you invest, say you do a web page for a business and because of some iffy work all there clients personal records are released, and they sue you and get an award if it's against the company you are in the clear.

The issues with limited liability is that there is a annaul reporting requirement to CRO not very difficult but still a hassle.

TAX well each person involved can work as PAYE for company or get paid as consultants and look after their own tax, the company pays 12.5% corporation tax an profits. The share holders pay if I remember 20% on dividends. Check out with revenue limits on shareholder % so as not to be treated as self employed, if being paid PAYE.

If you are just checking out the waters maybe wise not to set up either partnership or limited liability, but check up revenue requirements, prob not have to set up for VAT, but check limits and if you believe you will exceed then reg for VAT.

In any case get advice of good local accountant, he will make sure you set up correctly and do all the required registrations. You never know if he needs IT service he may do a swap deal.

Axwell

smcgiff wrote: »

Yip* - but be careful with the split. In the second scenario you personally come out with €33.33 less

Yeah well if it was being split it would be split exactly 3 ways but then the only thing is I would be the one claiming back all the stuff off my business eg hosting etc as the receipts would be through the business in my name but we would be splitting all the costs. So I might have to come to some arrangement at the end where I work out a bonus to give them to even things out. Or else I would have to take a bigger cut and cover all the expenses.


At the minute I am self employed running my own business doing the same line of work. So an option might be for me to continue to just trade as I am and pay them as contractors as above. Its just we had spoke about setting up a new name so that there wasnt any ties to my own business but in terms of opening bank accounts etc it might be just easier for me to stay as I am and use that as the business and then pay them as contractors.