On the way to start your own business, the first question you will face is the choice of the form of business ownership. Self-employment and Limited Company by shares are the two most common forms, which have quite a few differences between themselves.
How to choose what is right for you? Let’s see.
The main difference between Self-Employed and an Limited company is its legal status. A Self-Employed is a person who has registered as an entrepreneur. The individual entrepreneur does not have separate property, therefore, in the event of bankruptcy, you will have to sacrifice personal belongings. Limited company is a separate legal entity with its own rights, obligations and property.
Alone or with partners?
If you are going to do business alone, withdraw all profits for your own needs and volumes and risks of your business are not too big, the status of Self-Employed could be right for you. A self-employed person can work with or without employees and be responsible for everything independently. If you start a business with friends, you better register a Limited Company.
There is an option to register Partnership or Limited Liability Partnership (LLP), however the level of personal liability for the act of partnership is too high (even in LLP, if partner is involved into management), therefore this form is not very popular in Ireland.
Limited companies are obliged to have director(s) and secretary (Smart Budget Accounting can fulfil this function), keep sufficient accounting records and submit accounting reports at the end of the year to CRO and Revenue. Large firms hire an accountant and whole finance department for this. Smaller enterprisers can outsource accounting function, who can run their bookkeeping, provide Management accounts and submit statutory accounts. We can surely help with all this. We have tried to streamline accounting as much as possible so that you do not think about transactions and invoices, but focus on operations of your business.
The self-employed can freely withdraw the proceeds, and the shareholders/directors of the LTD receive dividends and salary.
Perhaps this difference can play a decisive role. Since the self employed = an individual, an individual can dispose of the money earned in any way and at any time take the proceeds for personal needs. In the case of a Limited Company, this cannot be done, because this is the company’s income and can only be spent for the justified purposes. You, as a shareholder, will be able to receive income in the form of dividends or as an employee of the company.
Taxation
Despite of further admin cost of running Limited company, you can save on taxation – corporation tax on profit in Ireland is 12.5%, while profits of self-employed are taxed as your income, which can be up to 52%. This is an important for someone who wants to invest profits further into building the company, rather than spending everything on personal needs.
Revenue has also introduced Corporation tax relief for new start-up companies, which is based on PRSI-employer paid for the employees of new company.
To summaries all above, here are the advantages and disadvantages of Self-Employment and Limited Company
| SELF-EMPLOYMENT
⊕ Easy to get registered (with Revenue Commissioners only) ⊕ No obligation to file Annual Returns to CRO, easier filing to Revenue ⊕ Use of business cash is easy for personal use ⊗ All your profits are taxed as your income, which can be up to 52% ⊗ Personal liability for business debts |
LIMITED COMPANY
⊕ Higher credibility in the industry (company is considered as more solid legal entity) ⊕ Lower profit taxes, Corporation tax relief for the start-up companies. ⊕ Protection of personal assets ⊗ Statutory obligations of returns to CRO ⊗ Larger fines and penalties for non-compliance |
Please, get in touch if you have any further questions and we can help to set your business in most efficient way: info@smartbudgetaccounting.ie
