Your Guide to Limited Company Advantages and Disadvantages

If you’re considering establishing a Limited Company in the Ireland or are simply curious about the advantages and disadvantages this business structure offers, you’ve come to the right place. In this blog, we’ll delve into the intricacies of forming a Limited Company and explore the potential benefits and drawbacks it can bring to your business endeavors in Ireland. Whether you’re an entrepreneur looking to make an informed decision or just seeking to expand your knowledge of company structures, join us as we navigate the landscape of Limited Companies and the opportunities they present.

Read More: Setting Up a Company in Ireland – The Key to Investment Benefits

Key Takeaways

  • The main advantages of a limited company in Ireland are limited liability, lower corporation tax rate of 12.5% on profits, and more flexibility for tax and retirement planning. Directors can take a lower salary to minimize income tax.  
  • Disadvantages include higher setup and compliance costs, more filing requirements, and less privacy as financial statements must be published. Directors also have legal duties. 
  • Ireland offers a competitive 12.5% corporate tax rate and other incentives like R&D tax credits that support starting a company. But costs are higher than being self-employed.  
  • Overall, a limited company structure is most beneficial once the business is growing and profitable. The legal form limits liability and opens up more tax planning options.  

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What are the advantages of a Limited Company?

Limited Liability Protection

  • Shareholders’ liability is limited to the amount unpaid on shares if the company is wound up. Personal assets are protected from company debts.  
  • This avoids the unlimited liability that self-employed sole traders have. Business assets can be seized but not personal property.  

Lower 12.5% Corporation Tax Rate

  • Trading company profits are taxed at 12.5% corporation tax versus income tax rates of 20-40% for sole traders.  
  • More profits can be retained for reinvestment. New startups also get a corporation tax exemption for the first 3 years.  

Flexibility for Tax and Retirement Planning

  • Directors can take a lower salary to minimize income tax versus self-employed individuals who pay tax on all profits.  
  • Other tax planning options include pension contributions, share allotments, director’s fees, and dividends.  

Separate Legal Entity

  • A limited company is a separate legal entity that can enter into contracts and sue/be sued in its own right.  

Business Credibility

  • Limited company structure projects a more credible business image and is sometimes required by B2B clients.  

Access to Funding

  • Can raise investment by selling shares. Also may find it easier to get bank loans and qualify for grants.  

What are the disadvantages of a Limited Company?

Higher Costs

  • More expensive to setup (€250-300) and higher annual accounting fees around €1000-1500.  

More Administration

  • Increased filing requirements and penalties for non-compliance. Must submit annual returns.  

Less Privacy

  • Company accounts submitted to CRO can be viewed by anyone. Directors’ salaries disclosed.  

Legal Responsibilities

  • Directors have fiduciary duties to act properly and additional liability risks.  

Slower Setup

  • Typically takes 1-2 weeks to incorporate a company in Ireland.  

Potential Loss of Control

  • Selling shares means giving up ownership rights. Minority shareholders have protections.  

Conclusion

  • The competitive 12.5% corporation tax rate and other incentives make Ireland an attractive location to setup a company.  
  • However, the costs and administration involved mean a limited company structure is most beneficial once the business is established and profitable over €10k.  
  • The legal form limits liability for debts and opens up more tax planning flexibility. But more compliance work is required.  
  • Overall, the pros tend to outweigh the cons for most trading businesses in Ireland. But get impartial advice on the best structure for your circumstances.