Limited vs Unlimited Companies in Ireland: Which One is Right for You?
When it comes to setting up a new company in Ireland, there are many things that need to be considered before you put anything in motion. One of the most important decisions is determining which company type is best suited to you and your proposed business.
In Ireland, there are two main types of companies: limited companies and unlimited companies. Both have their own advantages and disadvantages, and it’s important to understand the differences between them before making a decision.
What is a Limited Company?
A limited company is a class of private company that is the most popular company type in Ireland. The shares in a limited company are owned privately by the shareholder/s who have limited liability. This company type does not have an objects clause in its constitution, therefore it is permitted to trade in any unregulated activity.
What is an Unlimited Company?
An unlimited company is very much a regular private company limited by shares and it is becoming more popular in Ireland.Unlike a limited company, the shareholders of an unlimited company do not enjoy limited liability.
This company type must have an objects clause in its constitution. This means that the company can only trade in the industry or activity specified in the objects clause and cannot deviate from those activities. An unlimited company has the option to not submit financial statements in certain situations, meaning the company has greater confidentiality than that of a limited company.
Benefits of Limited Companies
There are several advantages of forming a limited company in Ireland, such as:
Shareholders are only liable for the amount they have invested in the company.
Limited companies are subject to corporation tax on profits at only 12.5% (Ireland is in the top 10 countries with the lowest CT rate, the global average rate is 23.79%).
Limited companies are perceived as more credible and professional than sole traders or partnerships.
A limited company has a separate legal identity from its owners, meaning that it can continue to exist even if the shareholders change.
Drawbacks of Limited Companies
There are also some disadvantages of forming a limited company in Ireland, such as:
Limited companies are subject to more compliance requirements than sole traders or partnerships, such as filing annual returns, preparing financial statements, etc.
Limited companies are required to disclose certain information to the public, such as the names of directors, shareholders, etc.
Limited companies are more expensive to set up and maintain than sole traders or partnerships.
Benefits of Unlimited Companies
There are several advantages of forming an unlimited company in Ireland, such as:
Unlimited companies have more flexibility in terms of their constitution and activities than limited companies.
Unlimited companies are subject to less regulation than limited companies, such as AGM requirements, financial statement requirements, etc.
Unlimited companies have the option to not submit financial statements in certain situations, meaning the company has greater confidentiality than that of a limited company.
Drawbacks of Unlimited Companies
There are also some disadvantages of forming an unlimited company in Ireland, such as:
Shareholders are personally liable for all the debts and obligations of the company.
Unlimited companies are exposed to more risk than limited companies, as their shareholders are personally liable for the company’s debts and obligations.
Lack of protection:
Shareholders of unlimited companies do not have the same level of protection as shareholders of limited companies.
How to Choose the Best Company Type for Your Business
When deciding between a limited and an unlimited company in Ireland, there are several factors to consider, such as:
The Nature of Your Business:
Reflect on what your business does and the sector it operates in. Certain industries might inherently align better with a particular company structure.
For example, professional service providers who desire a closer relationship with their clients might opt for an unlimited company due to its privacy advantages. Conversely, a tech startup seeking investment might be better structured as a limited company to attract investors who prefer the security of limited liability.
The Level of Risk Involved:
Consider the potential liabilities your business might incur. If there’s a significant risk of financial uncertainty or legal disputes, a limited company can offer you personal financial protection. Your liability is restricted to your investment in the company, which can provide peace of mind and reduce personal risk.
The Amount of Capital Required:
Establishing a limited company might be the preferred route for businesses that need substantial capital investment because it can be easier to secure funding. Investors are often more willing to invest in a limited company due to the clear structure and limited liability. This can be crucial for startups that need a solid financial base to grow.
The Future Plans:
If you have ambitions to scale your business, a limited company may be the way forward. This structure is conducive to expansion, allowing for easier access to capital, potential tax advantages, and a more straightforward process for bringing in new partners or investors. Additionally, if you’re looking to eventually sell the business or list it on a stock exchange, a limited company is typically a requirement.
How to Register a Limited or Unlimited Company in Ireland:
Registering a company in Ireland, be it limited or unlimited, is a process that requires careful planning and attention to detail. The steps you need to follow are methodical and each serves an important purpose in the legal and operational foundation of your business.
- Choose a Unique Company Name:
- Prepare a Constitution:
- Appoint Directors and Shareholders:
- File an Application with the CRO
- Register for Taxes with the Revenue Commissioners
For a detailed walkthrough of each step, you can refer to this comprehensive guide [Step by step guide to forming an Irish Limited company]. This resource offers a deep dive into the intricacies of the process, ensuring you have all the information needed for a successful registration.
Frequently Asked Questions:
1. What are the tax implications for limited vs unlimited companies in Ireland?
Limited companies in Ireland benefit from a corporation tax rate of 12.5% on trading income, which is among the lowest in Europe. They can also avail of tax deductions and credits, such as R&D credits. Unlimited companies, on the other hand, have their income assessed under personal income tax rates, which can be higher, and they do not benefit from certain corporate tax deductions.
2. How long does it take to set up a company in Ireland?
The timeframe for setting up a company in Ireland can vary. If all the paperwork is in order and the application is completed correctly, the Companies Registration Office (CRO) can process it within 5 to 10 working days. However, additional time for tax registration and setting up bank accounts should be considered.
3. Do I need to be a resident of Ireland to form a company there?
No, you do not need to be a resident of Ireland to form a company. However, at least one of the company directors must be a resident of the European Economic Area (EEA), or alternatively, the company can hold an insurance bond.But don’t stress, we have a solution!
4. Can I convert an unlimited company to a limited company at a later stage?
Yes, it is possible to convert an unlimited company to a limited company. The process involves amending the company’s constitution and filing the necessary forms with the CRO. This might be done for various reasons, such as seeking limited liability protection as the business grows.
5. Are there any annual filing requirements for unlimited companies in Ireland?
Unlimited companies in Ireland are not required to file their accounts publicly with the CRO, which is often seen as a benefit for privacy. However, they must still file an annual return and other necessary documentation to remain compliant with Irish company law.
How Peak Accounting Solutions Can Help You:
Looking to set up your company in Ireland? Peak Accounting Solutions is here to help. We offer straightforward advice and free consultations to make your company formation smooth and hassle-free. From choosing a company name to handling the paperwork, we’ve got you covered. Get in touch with us for a simpler start.