Sole Trader vs Private Company Limited by Shares (LTD) – Advantages and Disadvantages

By Simon O’ Connor, 10th July 2015
There are two main options available for entrepreneurs setting up in Ireland; Sole Trader and Private Company Limited by Shares (LTD). There are numerous factors to consider when making this choice including the type of business it will be, the forecasted turnover, whether or not you will be looking for investment etc.
The main difference between the two is that a Private Limited Company is considered a separate legal entity from any of the individuals involved including Directors and Shareholders meaning they cannot be held liable for the company’s debts. Every year, a limited company is obliged to prepare Financial Statements and make an Annual Return with the Companies Registration Office. On the other hand a Sole Trader is where you and your business are legally and financially the same, so you do not have Limited Liability like you do with an LTD.
Advantages of a Limited company:

  • An Ltd will have a low corporate tax rate of just 12.5%.
  • The business is considered a separate legal entity than from the people involved ( Directors and Shareholders)
  • Operating a limited company would often give both customers and suppliers a greater sense of confidence in the business as they appear more credible than a sole trader.
  • Once an LTD has registered a company name, the name is then protected and may not be used by anyone else.
  • Company Directors can avail of excellent tax breaks on pensions
  • More often than not, larger organisations will not deal with non-limited businesses.

Disadvantages of a Limited company:

  • The cost to open and close an LTD is higher than it is as a sole trader
  • There is more compliance required with an LTD i.e. Annual Returns etc.

Advantages of a Sole Trader:

  • There is no requirement to file annual returns with the CRO
  • Setting up the business is cheap and easy
  • There is very little cost involved when closing the business

Disadvantages of a Sole Trader:

  • Profits can be taxed at personal rates which can be as high as 52%
  • There is no Limited Liability meaning there is no limit on personal liability for the debts of the business
  • Often not considered as credible as an LTD which can go against the business when tendering for contracts etc.

If you would like more information, please do not hesitate to contact the experts in Register A Company in Ireland on +353 1 687 4519 or alternatively you can complete the contact form and one of our representatives will contact you with the required information as soon as possible.

How to Switch from a Sole Trader to a Limited Company