The first step in starting a new business will be making a decision about the type of company that you are going to register. This decision will affect the way you trade, the type of business that you do and most importantly, it will affect the way you pay tax and the amount of tax that you pay at the end of the financial year. This simple and handy guide lays out the most common types of company and the implications of each one.
1. Sole Trader: A sole trader is an individual who is the owners of a business in their own right. A sole trader will be liable for all of the costs associated with a business and the all of the investment into the business. It also means that the individual is liable for all debts that the business may incur. From a tax perspective, you will have to pay income tax, self-employment tax, and maybe even excise tax, which is dependent on the nature of the business that you run. You will have to register with the Revenue Commissioners. You should also register your business name with the Companies Registration Office.
2. Partnerships:A partnership is a business relationship between a couple of people, although it can be more, who join together to form a business and to trade in that business. The value of each person’s share is determined by the value of the startup capital that they place into the business. This does not always have to be money. It can be skills, labor and even property. The profits of the business are shared according to the level of investment and all partners are equally liable to any debts and taxes that have to be paid at the end of the year.Partnerships have the added responsibility of having to declare information to the IRS as part of their tax return.
3. Limited Company:A Limited Company is a structure that falls under Irish statutes and laws. It means that as an owner, you will have a limited liability if the company declares a loss at the end of the year. It allows you to protect your assets and not assume the financial burden of having to face debts in your personal capacity. You will have to register the company with the Companies Registration Office (CRO) and make sure that all company reports are returned each year.
The costs involved in setting up a business structure will be one of the deciding factors. It will also affect the way you run your accounting records. It is an important part of running a business, and one of the first decisions you should make.