Bizstartup.ie - Start Up Kit

Nick Linnane, founder and managing partner of Linnane McGleenan Chartered Accountants, says a lot start-ups begin as sole traders or partnerships and after a couple of years decide to become a limited company.

Sole trader or limited company

“Typically, a sole trader might be a country shop with annual turnover of €200,000 and €30,000 in net profit; a partnership could be any sort of operation and would involve a similar level of profit per person. Such levels of profit don’t require the protection from a taxation point of view as a limited company would. Sometimes, however, start-ups decide to be limited companies from the beginning because that would be their customers’ preference,” he explains.

“If you’re in a risky type of business – tightrope walking for example — a limited company might also be the more sensible option for insurance purposes.”

Registering for tax

You need to register with the Inspector of Taxes for income tax and VAT and produce a set of accounts as a sole trader or partnership. A limited company must also register for corporation tax. “The limited company structure is a little more costly to run than the other two as it involves extra responsibilities under Companies Act legislation – for instance, directors need to declare income tax for their own income and the company must produce abridged accounts,” Linnane explains.

Partnerships

Regarding partnerships, particularly between family members or friends, it’s crucial to draw up a partnership agreement from the outset.

“You need to agree things like responsibilities within the business, whether there are dual signatories on cheques and what happens to a partner’s share if they want to get out of the business or have an accident. I always say to clients to draw up a basic agreement themselves first and then go to a solicitor. The sign of any good partnership agreement is that it’s gathering dust on the shelf.”