Before we dive into the differences let us first understand what is a sole trader and what is a limited company are, to help you best understand which company formation route is best suited for you.

What is a sole trader?

A sole trader is an independent business owner who manages and runs their own business under their own tax number. Since you as a person and the business are one and the same, any losses the business experiences are your personal responsibility as a sole trader. Likewise, after paying taxes on the profits, you keep everything.

Individuals who operate their own businesses as sole traders are personally accountable for keeping accurate records of their business financial transactions. This includes filing an annual self-assessment tax return and, if your revenues exceed the VAT threshold, registering for VAT and filing VAT returns.

What is a limited company?

A limited company has its own legal identity. As a result, it is a completely separate entity. The owners of the business are called shareholders and their liability is limited to the investment they made. (Therefore, “limited”)

The majority of limited companies operate on a “shares” basis. When a company is divided into shares, each share has a specific monetary value. The shareholders are then given these shares in turn for the capital invested.

This implies that shareholders’ liability is limited to the price of their shares therefore the shareholders of a limited company are not personally liable for the debts of the business in general (shareholders may have to sign personal guarantees when dealing with banks).

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What is the key difference between a Sole Trader and a Limited Company?

Let’s take a look at some of the most significant differences between operating as a sole trader and as a limited company:


In a limited company, your liability is limited to the amount invested in the company. However, as a sole trader, you are liable for any losses your business may incur.


Compared to a limited company, the set-up and compliance for the sole trader is typically a little simpler.


There are a number of differences in tax rates and the tax treatment between sole traders and companies. For growing businesses, the advantages with a company can often outweigh any compliance costs.


Business owners who take an income from their business have to be set up as employees of a limited company whereas they are not employees in a sole trader set up

Side by side comparison : Sole Trader vs Limited Company

PointsSole TraderLimited Company
Set up & Shut downSimple. Just register and deregisterMore complex but straight forward to set-up and strike-off.
Tax FilingsIncome, VAT, PAYECorporation, VAT , PAYE
CRO FilingsNot requiredAnnual Return
RBO FilingsNot requiredMust be kept up to date
Financial StatementsA simple set will doFull set of statutory accounts required
Privacy – Financial DetailsNot visible to publicSome info visible to public for a small fee
Access to creditLess LikelyMore Likely
Access to Grants & SchemesSome schemes not available e.g. SURE, TOV, Generally more access
CredibilityLess perhapsMore perhaps
Legal EntityYou and business are oneSeparate entities
LiabilityUnlimited LiabilityLimited Liability
Scope for tax planningRestricted to %age of incomeMore options 
ComplianceTax obligations mainlyTax and Company Law. Agencies CRO / RBO etc. Large fines and penalties for non-compliance
Exit Planning & SuccessionStraightforward limited optionsMore Options for exits
Company SharesNot possibleYes
Sell Company SharesNot ApplicableYes
TAX ReturnPrepare each yearPrepare each year
TAX LiabilityProfits are taxed as your income, can be taxed up to 55%Profits are taxed at 12.5% (Corporation Tax)
Owner Drawings / PayNo salary. Taxed on profit not drawingsPaid a salary. Taxed on drawings not profit
Business Name RegistrationNeed to register with CRO if using another name.Need to register with CRO if using another name.
Financial & Salary PlanningLimited ScopeHigher Scope
Pensions and Retirement PlanningStrict limits on what you can invest and take benefitsMore options in paying in and on retirement
Preferred business contractsLess Preference Higher Preference
Comparison between sole trader and limited company

As you can see, there are numerous advantages and disadvantages to each type of business structure, so carefully weighing your options is essential.

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How to start as a Sole Trader?

In Ireland, starting a business as a sole trader is a simple and straightforward process. All that is required of you is to do is Register Your Business as a Sole Trader for Taxes (

If you are trading under a name that is not your own you are required to register a business name with the CRO. This is not setting up a company.

How to start a Limited Company?

Setting up a limited company is more difficult than to setup a sole trader. You will need to select shareholders, decide on the ownership and share structure of the company, select a company name, company directors and a company secretary before you can officially register your business.

These are merely the fundamentals. You can get any additional information that you require from the Companies Registration Office of Ireland (CRO), which is also where the paperwork for your incorporation can be found. The name is recorded in a register, which prevents it from being used by any other companies in the future.

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