Are you considering setting up a limited company in Ireland? If so, it’s important to understand the benefits and challenges of this business structure. Whether you’re a budding entrepreneur or an established business looking to expand, understanding these aspects is crucial for your success.
In this article, we’ll explore the advantages and disadvantages of forming a limited company in Ireland, including the legal requirements, taxation, and other factors that you should consider before making a decision.
The Pros of Forming a Limited Company in Ireland
Limited Liability
Protects Your Personal Assets from Business Debts
One of the main advantages of setting up a limited company in Ireland is that it provides limited liability protection to its shareholders. This means that the personal assets of shareholders are protected from the debts of the company.
In other words, if the company goes bankrupt or is unable to pay its debts, the shareholders are only liable for the amount of money they have invested in the company. Their personal assets, such as their homes and cars, are not at risk.
Tax Benefits
Lower Corporation Tax and Claims More Expenses
Another advantage of forming a limited company in Ireland is that it can be more tax-efficient than other business structures. Limited companies are taxed differently from sole traders and partnerships. They are subject to corporation tax, which is currently set at 12.5%. This is lower than the personal income tax rate, which can be as high as 52%.
In addition, limited companies can claim certain expenses as tax-deductible, such as salaries, rent, travel, training expenses and equipment. This can help to reduce the company’s taxable profits and lower its overall tax bill.
Financial Planning
More Flexibility and Control Over Your Income and Retirement
Operating as a limited company allows for more strategic financial planning. Company directors can choose how and when to take income, optimizing their tax position. This flexibility extends to retirement planning, where profits can be retained within the company or invested in a pension plan, offering tax-efficient ways to secure your financial future.
Credibility
Enhances Your Professional Image and Reputation in the Industry
Forming a limited company in Ireland also enhances your professional credibility. Clients and suppliers often perceive limited companies as more stable and reliable than sole traders or partnerships. This enhanced image can lead to better business opportunities, partnerships, and growth.
Government Support
Qualifies for Various Grants and Schemes in Ireland
Ireland offers various grants and support schemes for limited companies, particularly those in specific sectors or engaging in research and development activities. These incentives can provide crucial financial support, especially in the early stages of business development.
Legal Entity
Can Enter into Contracts, Sue and Be Sued in Its Own Name
A limited company is a separate legal entity from its shareholders. This means that it can enter into contracts, sue and be sued in its own name. This gives the company a certain level of protection from the actions of its shareholders.
For example, if a shareholder leaves the company or passes away, the company can continue to operate as normal. In addition, limited companies can raise investment by selling company shares to investors. This is more difficult for sole traders and other partnerships.
The Cons of Forming a Limited Company in Ireland
Costs
More Expenses and Fees to Set Up and Run
Setting up a limited company in Ireland involves certain costs, such as registration fees, legal costs, and potentially higher accounting& taxation fees. Ongoing expenses, like annual returns and compliance costs, also tend to be higher for limited companies compared to other business structures.
Complexity
More Rules and Regulations to Comply With
Limited companies are subject to more stringent rules and regulations. This includes detailed record-keeping, annual audits (for certain company sizes), and adhering to corporate governance standards. Navigating these requirements can be complex and time-consuming.
Transparency
Has to Disclose Certain Information to the Public
Limited companies in Ireland are required to disclose certain information, such as financial statements and director details, to the Companies Registration Office. This public disclosure might not be desirable for all business owners, especially those seeking privacy in their business operations.
Legal Duties
Imposes Certain Responsibilities and Obligations on the Directors
Directors of limited companies have legal responsibilities, including ensuring compliance with company law, tax laws, and other regulatory requirements. Breaching these duties can lead to penalties, fines, or legal action, adding an extra layer of responsibility.
What is a Limited Company?
A limited company is a type of business structure in Ireland. It is a separate legal entity from its shareholders, meaning that it can enter into contracts, sue and be sued in its own name. Limited companies are owned by shareholders, who each have limited liability for the company’s debts.
Why Choose Ireland as Your Business Location?
Ireland is a popular location for businesses due to its pro-business policies, exceptional workforce, and reputation as a highly attractive place to work and live. Ireland is also a member of the European Union, which provides access to a market of 460 million people. Other reasons to choose Ireland include:
- Ease of doing business
- Supportive state agencies
- Political stability
- Low corporate tax rate
- Comprehensive Double Taxation Agreements
- Quality, flexibility, and skills of the workforce
- Government grants and incentives
- Transparent judicial system
- Strong intellectual property protection
How to Set Up an Irish Limited Company in Ireland
To set up an Irish limited company, you need to follow these steps:
Read more: Step-by-step Guide to Forming an Irish Ltd Company
- Choose your company name.
- Decide on a registered address and a business correspondence address.
- Appoint at least one EEA resident director and a company secretary.
- Appoint at least one shareholder and decide how to divide up company shares.
- Prepare and sign your company incorporation documents.
- Register your company with the Companies Registration Office (CRO) and the Irish Revenue Commissioners (Revenue).
Releasing Shares
Transferring shares within an Irish private limited company is common, whether through sale or as a gift. This process involves the transfer of share ownership from an existing shareholder (transferor) to a new shareholder (transferee).
The transfer of shares is subject to certain conditions and restrictions that may be outlined in the company’s constitution or under company law, but may be transferred freely by a shareholder. If you’re considering transferring shares in your company, it is important to seek professional advice.
Company Directors and the Barriers to Setting Up a Corporate Entity in Ireland
When setting up a corporate entity in Ireland, there are a few things to consider, particularly with regard to the proposed directors. You may be a single director company (set up with only one director) or have multiple company directors.
Limited private companies in Ireland must have at least one EEA resident director (someone who is a resident of the European Economic Area).
It is possible to have non-resident directors to set up a company in Ireland, however the None-EEA resident director would need to purchase a Section 137 Bond.
The bond protects the business against violations of the Companies Act 2014. It also removes the requirement that an EEA-resident director must be present.
In some cases, if the business can show that it has a real and continuous link with one or more economic activities in Ireland, it may be relieved of the need for a resident director. For example, the company may already be trading with other Irish businesses and customers or have employees in the country.
What are the Alternatives to a Private Limited Company in Ireland?
There are several alternatives to a private limited company in Ireland, including:
Sole Trader:
A sole trader is a self-employed individual who owns and operates their own business. This is the simplest and most common form of business structure in Ireland.
Sole traders have unlimited liability for the debts of their business, meaning that their personal assets are at risk if the business fails.
Partnership:
A partnership is a business structure in which two or more people share ownership of a business. Partnerships can be general partnerships or limited partnerships. In a general partnership, all partners have unlimited liability for the debts of the business.
In a limited partnership, there are one or more general partners who have unlimited liability and one or more limited partners who have limited liability.
Explore more about Irish company Types: Irish company Types
Designated Activity Company (DAC):
A DAC is a type of limited company that is required to have a specific business objective. This business objective must be included in the company’s constitution. DACs can be limited by shares or limited by guarantee.
Public Limited Company (PLC):
A PLC is a type of limited company that can offer its shares to the public. PLCs are subject to more regulations than other types of companies and must have at least two directors. They are also required to have a minimum share capital of €25,000.
Each business structure has its own advantages and disadvantages, and it’s important to choose the right structure for your business. If you’re considering forming a business in Ireland, it’s important to seek professional advice to ensure that you make the right decision for your business.
Want to Form a Limited Company in Ireland? Contact Us Today!
If you’re considering setting up a limited company in Ireland, Peak Accounting Solutions is here to assist you. Our expertise in Irish company formation and business advisory services will ensure your venture is set up for success. We offer a range of services to help you set up and run your limited company, including company formation& maiantanence, secretarial services, Irish resident director, Tax registration, and more. Our dedicated team is here to guide and assist you every step of the way. contact us today to learn more about how we can help you achieve your business goals.
