Should I be a sole trader or limited company?

If you're self-employed or planning to start your own business, one of the first major decisions you'll face is how to structure it. Should you operate as a sole trader or set up a limited company? Each option has its own set of advantages and drawbacks, particularly when it comes to tax, liability, and administrative responsibilities.

In this article, we’ll explore the pros and cons of becoming a limited company to help you determine whether it’s the right move for your business ambitions and personal circumstances.

 

Some Advantages of Going Limited

 

1. Limited Liability

Directors' or shareholders' personal assets are protected and not at risk in the event of a winding-up or receivership. This provides peace of mind and financial security.

2. Attracting Investors

Investors are more likely to invest in a limited company due to the added protection it offers. Additionally, transferring shares is straightforward, making it easier to bring in new investors or exit the business.

3. Access to Bank Finance

Banks often prefer dealing with limited companies as they can secure additional guarantees or security, making it easier to obtain loans or credit facilities.

4. Tax Relief for Start-Ups

New companies may qualify for corporation tax relief for the first three years of trading, subject to certain conditions. This can significantly reduce the tax burden during the critical early years.

5. Tax Savings

Limited companies benefit from a lower corporation tax rate of 12.5% on trading profits, compared to the marginal tax rate for individuals, which can reach up to 55%. Additionally, companies do not pay PRSI on profits, further enhancing tax efficiency.

6. Enhanced Business Status

The inclusion of "Limited" or "Ltd" at the end of a company name adds prestige and credibility. It can create the perception that the business is established and professional, which may attract more customers and partners.

7. Exclusive Company Name

Once registered with the Companies Registration Office (CRO), the company name is protected. No other business can register the same name while the company remains on the CRO register.

 

Some Disadvantages of Going Limited

 

1. Administrative Burden

Operating as a limited company involves additional administrative responsibilities, such as submitting annual accounts, tax returns, and other statutory filings to the Companies Registration Office (CRO).

2. Reduced Privacy

A limited company’s details, including financial accounts and directors' information, are publicly accessible on the CRO register, reducing privacy compared to sole traders or partnerships.

Directors and shareholders may struggle to maintain a clear distinction between the company’s affairs and their personal finances, which can lead to compliance issues and potential legal complications.

 

Thinking of Going Limited?

 

Lots of businesses start out as sole traders and then decide to make the jump into a limited company. Read our article on how to I make the choice to move and the tax implications of incorporating here

 

 

First published 22 Apr 2014 | Last updated 6 May 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.