Scale

The first thing you need to consider is your intention for the business. Will this be something to chug away in the background when you are in another job or are you looking to create the next Google? If the scale of the business is going to be small and any profits will be consumed by you and assuming the subsequent points are not important to you then a sole trader is probably the appropriate route.

Separate Entity / Limited Liability

A company creates a separate legal identity which can limit the liability of the shareholders / directors. This may or not be an important factor in minimising risk depending on your circumstances but banks and some other creditors will still look for personal guarantees from you. The separate identity can often be required for some grants and it often makes the business seem more significant to the outside world. In insolvency situations the company structure is much preferable.

Taxation

Corporation tax in Ireland is very low at 12.5%. If your business is earning more than you need to live on then it makes sense to incorporate. You will become an employee of the company and will effectively pay personal tax on your drawings rather than profit of the business. This is often a difficult distinction for people to understand. An owner managed company will likely be categorised as a Close company and there are additional tax rules here that need to be considered. 

Pensions and Retirement

This is an area where a company structure wins hands down both in terms of your ability to fund a pension in the earlier years and your options in retirement. You can invest a lot more money into pensions, there are more flexible self administered structures available to you and you can retire earlier and have more control over the fund on retirement.

Other costs and expenses

Compliance costs increase with a company but there are generally more advantages on tax and pension rules. Motor and Travel costs will again depend on circumstances but it is worth noting that company directors can claim unvouched civil service mileage and subsistence rates. If entertainment of clients is an important factor then a company structure is beneficial.

Compliance

Certainly compliance is increased with a company structure and this is very much related to the first point above on the scale of the business. Additional costs should be outweighed by the benefits but there are many additional penalties and legislation to be aware of with the Companies Acts and Health and Safety legislation.

In summary

We think that company structures work best especially if the business owner is looking to create something of significance. It provides greater taxation and retirement benefits, creates a buffer between you and the business and is the ideal structure for taking on new investors, planning your exit and when businesses fail.  On the other hand some businesses are not allowed to incorporate and some tax schemes are only applicable to sole trades. The most important point to note is that it very much depends on the facts and your circumstances.