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When you start a business in Ireland you can trade as a sole trader, a partnership or a limited company. The choice affects your tax, your personal liability and your admin, so it is worth getting right from day one.
Sole trader
A sole trader is the simplest structure: you and the business are the same legal person. You keep all the profits, but you are personally liable for all the debts. You pay income tax (20% and 40%) plus PRSI and USC on your profits, and file an annual income tax return (Form 11).
Partnership
A partnership is two or more people running a business together. Each partner is taxed individually on their share of the profits, and each partner is personally liable for the partnership's debts. A written partnership agreement is strongly recommended.
Limited company
A limited company is a separate legal entity. Shareholders' liability is generally limited to the amount they invested, which protects personal assets. A company pays corporation tax at 12.5% on trading profits, while directors and employees pay income tax on their salaries. Companies have more compliance, annual accounts, corporation tax returns and CRO filings.
At a glance
| Sole trader | Partnership | Limited company | |
|---|---|---|---|
| Legal status | You are the business | Shared between partners | Separate legal entity |
| Liability | Unlimited (personal) | Unlimited (joint) | Limited to share capital |
| Tax | Income tax 20% / 40% | Each partner taxed individually | 12.5% corporation tax + income tax on salary |
| Filing | Form 11 annually | Form 11 each partner | CT1 + CRO annual return |
Which is right for you?
There is no single right answer, it depends on your profits, your plans, your risk appetite and whether you want to retain profits in the business. As a rough rule, incorporation often becomes attractive once profits are consistently high enough that you are paying the 40% rate.
Frequently asked questions
What is the main advantage of a limited company?
Limited liability and a lower tax rate on retained profits. Company trading profits are taxed at 12.5%, which can be much lower than the 40% income tax a sole trader pays.
Do I pay more tax as a sole trader?
Not necessarily at low profit levels, but once you are paying the 40% rate, a company can often be more tax-efficient because profits can be retained at 12.5%.
Can I change structure later?
Yes. Many businesses start as sole traders and later incorporate, but the timing and method matter for tax, so plan it with advice.
How do I decide?
Model the tax and consider your liability and growth plans. An accountant can run the numbers for your situation.
Choosing the right structure can save you a lot of money and protect your personal assets. If you are starting up or thinking of incorporating, talk to Bradán Accountants, we will help you pick the right structure for your plans.
Sources
- Revenue.ie – Business structures (sole trader, partnership, company)
- Companies Registration Office (CRO) – Registering a company
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