As 2023 rolls around, a whole host of new opportunities come with it. January is one of the busiest times of year when it comes to the creation of a Limited Company, however it can be a very confusing process especially when you’re just starting out.
If you’re thinking of embarking on a new business venture in Ireland this year, the Company Formation Services team at Accountant Online have compiled their expert advice regarding the creation of a Limited Company.
First off, what is a Limited Company?
- A Limited Company (LTD) is one of the most common types of business structures in Ireland – 88% of all businesses in the country are LTDs according to the latest Company Registration Office
- LTDs benefit from limited liability, which means company directors/shareholders are generally only liable for the amount they have invested in the business.
- Companies in Ireland are classed as separate legal entities, which means they can take out loans, enter contracts and be sued.
- It takes between 5-10 days for the Companies Registration Office (CRO) to process your application to form a company in Ireland
The Advantages of setting up a Limited Company –
Risk – “There is far less risk involved when setting up a Limited Company as you are not held personally liable for the debts of the company” notes Larissa Feeney Founder & CEO of Accountant Online “If you are a sole trader for example, you are held personally liable for all of the debts of the company, so if you fall behind on your debt payments you may find yourself in a situation where your personal vehicles or even your home are at risk.”
Funding, Tax & Expenses – “If you plan on seeking funding for your business it’s worth baring in mind that certain grants within Ireland are only open to LTDs and not sole traders. LTDs also have more of an advantage in the tax field, as a sole trader all of your profits are subject to the PAYE tax rate of 20-40% whereas most LTD companies are only taxed the 12.5% corporation tax rate. There are also some government reliefs available for start-ups, meaning you may be exempt from paying corporation tax for up to 3 years, however there are a number of conditions that need to be met. Setting up an LTD also gives you the flexibility to claim expenses, mainly with your salary. As a sole trader, your full residual profit is taken as a salary whereas this can be expensed when working within an LTD. As an employee you can also claim the home working allowance of €3.20 per day if working from home.”
Are there any Disadvantages?
The Cost – “The initial setup costs of registering a Limited Company when compared to setting up as a sole trader are much higher. Registering a company costs around €200 with an agency or accounting firm, but there are also additional obligations for filing directors returns each year in addition to company filings and tax filings which can cost around €2,000 per annum. It is also a more serious legal undertaking, because your obligations as a director mean that you need to have awareness of compliance and fiduciary duties and adhere to the Companies Act 2014 when setting up, running and closing down your company.”
Privacy & Fines – “A Limited Company does not offer much privacy. The accounts that you submit to the CRO can be viewed by pretty much anyone who is willing to pay the fee to access the records, which is €15. These accounts include information about the organisation including the directors salary. If these accounts are not submitted to the CRO or fail to comply with the requirements, you will be on the receiving end of some penalties, including the loss of your audit exemption which leads to more expensive accounting fees. It’s important bare all of these points in mind when considering whether or not to register as a Sole Trader or a Limited Company”
How Do You Set up a Limited Company?
- Appoint at least one director and a company secretary
- Appoint at least one shareholder and decide how to divide up company shares
- Choose your company name
- Decide on a registered address and a business correspondence address
- Prepare and sign your company incorporation documents
1. Appoint at least one director and a company secretary
First things first, appoint a director. You need at least one.
“The director manages the company on behalf of its shareholders and usually in a start-up the directors and the shareholders are the same people. All Irish companies are required to have at least one director who is a resident of an EEA (European Economic Area) country. If you only have one director, you’ll need to designate a separate company secretary. The company secretary’s main duty is to file Annual Returns each year and work with your accountant to ensure your financial statements are filed on time. This role is hugely important because if your Annual Returns are filed late, you can be faced with a fine of up to €1,200.”
2. Appoint at least one shareholder and decide how to divide up company shares
Shareholders are the owners of the company.
“Think of shares as pieces of the company you can give away. This division of shares determines the legal ownership of the company. There are two different types of shares required when setting up a company: Authorised Shares and Issued Shares.”
Authorised Shares are like an aspirational amount of shares that you can issue, now or in the future. Authorised shares have no monetary value and do not affect the value of the company. Therefore, we advise that you authorise more shares than you issue so that you have an abundance of shares available for potential future investment.
Issued shares are the number of shares that have been allocated and paid for by shareholders. For instance, a company can have 100 issued shares, and if you issue those 100 shares to one shareholder then that one shareholder will have 100% ownership of the company. The number of shares that you issue determines who owns the Irish Limited Company.
“We recommend having 100,000 authorised shares and issuing 100 shares of €1 in value.”
3. Choose Your Company Name
“Your company name must be unique, distinguishable against other names previously registered in Ireland and follow the relevant guidelines. The Companies Registration Office carry out name checks based on these guidelines and if your chosen name isn’t deemed different enough, your submission will be returned and the company formation process will be delayed.
4. Decide on a Registered Address and a Business Correspondence Address
Your registered office address and your business address are slightly different –
“A registered office is your official, legal address of the company. This must be a physical location in Ireland and monitored regularly. It’s common for this address to be with your accountant because important notices will get sent here. The business address is where your company’s business mail, like invoices, are sent. This is a separate entity from your trading address. For example, you may not want to show your home address if you’re running an online business or working from home – in this scenario you can avail of a business correspondence address for your company, or a virtual office.
5. Prepare and Sign the Incorporation Documents
Once you have met the requirements above, you are now ready to incorporate your company. There are 2 options:
- Set up a company online via Companies Online Registration Environment (CORE).
- Outsource to a company specialist.