Changing from a sole trader to a limited company

If you’ve chosen to set up as a sole trader, as most start-ups do, you have the option of incorporating your business – i.e. changing to a limited company – further down the line.

There are various reasons why you might be considering a change. For example, your circumstances may be different, profits may have increased substantially or you feel the business has evolved and now requires further funding or the protection of limited liability.

Whatever the reason you are considering making the change, it is important you are fully aware of the pros and cons so you can make the best decision for your business.

Facts about sole traders and companys

 Advantages of a limited company:

  • There is a possibility that your business can avail of lower taxes:

As a sole trader, your tax rate (including USC and PRSI) is 52%. This is much higher than the Corporation Tax Rate of 12.5% on profits retained in the company. PAYE tax is applicable to companies on whatever pay you take from the company.

  • You will have limited liability:

A limited liability company is a separate entity from its directors and shareholders. This means that shareholders cannot be held liable for company debts exceeding the amount they paid for shares.

Sole traders are personally liable for the debts of their business. This means that your personal assets can be used to pay your creditors.

There are a number of reliefs available when transferring a business to a company- such as retirement relief, if you’re aged 55 or over and you continue to run the business through a company (there are other conditions you must satisfy in order to qualify for this exemption).

If you’re too young to claim retirement relief you can claim a Capital Gains Tax deferral, if you transfer all business assets (goodwill, land, buildings, plant, machinery and investments) as a going concern in exchange for shares in the company. Any gain received will be deferred until these shares are sold.

  • Your business name will be protected:

Once you have registered your name with the C.R.O, the registration of the same company name twice will not be allowed.

  • Access to credit:

Banks are much more favourable about giving loans to self-employed people in a limited liability company. Sole traders can often find accessing credit difficult.

Disadvantages of a limited company:

  • When you are running a company, you are legally required to file accounts with the Companies Registration Office in addition to the Revenue once a year. This increases compliance costs year on year.
  • As the company grows, there is a possibility the accounts may need to be audited, which can be expensive.
  • Your accounts will be open to the public and can be viewed online.
  • The director of the company’s salary must be disclosed.
  • Any money taken out of the company bank account by a director must be included in wages the month it is taken.

Whats the best option for you?

Changing from a sole trader to a limited company

Are you open to taking a risk? As a sole trader, you can lose your personal assets if your business is facing tough times. If this is something that keeps you up at night forming a company may be the best option for you.

Will choosing to incorporate grow your business? Being a limited company can improve your chances of securing contracts in the future. This is particularly relevant for companies that aim to operate outside of Ireland where limited company status is the norm.

Has your business experienced success over a sustained period? If your profits are rising, there may be tax benefits to setting up a limited company.

What industry is your business operating in? If you’re working in an industry, like construction, that has a higher risk of you getting sued, incorporating your business is the correct option to ensure you are protected.

How do you transfer a business to a company?

The easiest option is to work with a company registration agent, like Russell and Co. Chartered Accountants, to ensure the process is done efficiently and correctly.

The first step will be to value your sole trade. You’ll need professional help for this step, which we can provide, as it can get complicated. However, put simply, you’ll need to value the assets, goodwill and liabilities of your business.

Assets such as plant/machinery and fixtures/fittings will transfer to the company at their current values. If you transfer stock, you’ll need to have it valued.

An application to form a new company will need to made with the C.R.O. The company name will need to be approved and two directors and a company secretary are required to act as officers of the company. One of the directors can also be the secretary.

A new bank account will need to be setup for the new company and existing standing orders redirected to the new bank.

How can Russell and Co. help you?

Our expert team have over 40 years experience helping Irish businesses switch from a sole trader to a limited company. We can offer expert advice and guidance to ensure your business is a success.

Call our office on 021 4963679 or email

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