How to de­cide on the cor­po­rate struc­ture of your own busi­ness

Bray People - - NEWS -

Q. I have re­cently thought about trans­fer­ring my busi­ness to a lim­ited com­pany. Do you be­lieve this to be a good idea?

A. Whether or not a lim­ited com­pany struc­ture is ap­pro­pri­ate to your busi­ness will de­pend on a num­ber of fac­tors. It is now vi­tally im­por­tant that you con­sider all the po­ten­tial im­pli­ca­tions of any in­cor­po­ra­tion de­ci­sion. Per­haps, the great­est ben­e­fit of in­cor­po­ra­tion is the lim­ited li­a­bil­ity sta­tus it pro­vides. In­cor­po­ra­tion in­tro­duces a cor­po­rate veil be­tween the in­di­vid­ual share­holder and the com­pany. This means share­hold­ers of lim­ited com­pa­nies are only li­able to lose the share cap­i­tal they sub­scribe to. In con­trast a sole trader is per­son­ally li­able for debts of the busi­ness.

There are also clear tax ben­e­fits of in­cor­po­ra­tion. The cur­rent cor­po­ra­tion tax rate in Ire­land is much pub­li­cised at 12.5%. This com­pares very favourably to the cur­rent mar­ginal in­come tax rate to which sole traders are sub­ject to, which when PRSI and USC is in­cluded can be as high as 55%. Ob­vi­ously the ad­van­tage of hav­ing your busi­ness’s prof­its taxed at the lower cor­po­ra­tion tax rate are clear, how­ever it is im­por­tant to note, that a close com­pany sur­charge on undis­tributed in­come may also ap­ply in cer­tain cir­cum­stances. Cru­cially, in­come tax will still ap­ply to any salary, div­i­dends etc. taken from the com­pany. While busi­ness losses can­not be set against per­sonal in­come for tax pur­poses fol­low­ing in­cor­po­ra­tion.

The tax ef­fi­cient pen­sion con­tri­bu­tions avail­able to Com­pany Direc­tors also re­quire con­sid­er­a­tion. Th­ese can be very sig­nif­i­cant, de­pen­dent on the level of salary earned by the di­rec­tor, pe­riod of ser­vice, share­hold­ing etc. This is a sig­nif­i­cant ad­van­tage to in­cor­po­ra­tion and one which should be dis­cussed in de­tail with a qual­i­fied fi­nan­cial ad­vi­sor with re­gards to your own per­sonal cir­cum­stances.

With one eye to the fu­ture, it may also be eas­ier to dis­pose of all or part of the busi­ness, as a le­gal en­tity. This is be­cause a com­pany ex­ists in­de­pen­dent of any one per­son and there can be many own­ers. This also al­lows for in­creased tax plan­ning op­por­tu­ni­ties in terms of pass­ing on the busi­ness to the next gen­er­a­tion.

While the above are ob­vi­ous ben­e­fits of in­cor­po­ra­tion, there are also some other fac­tors which re­quire con­sid­era- tion be­fore any de­ci­sion is made. Set­ting up a com­pany is more ex­pen­sive than trad­ing as a sole trader. Leg­isla­tive re­quire­ments may be costly and time con­sum­ing as a re­sult of the need to pre­pare and file ac­counts with the Com­pa­nies Reg­is­tra­tion Of­fice. Im­por­tantly, th­ese ac­counts are then avail­able for in­spec­tion by the pub­lic. Com­pany direc­tors are also sub­ject to ex­ten­sive le­gal re­spon­si­bil­i­ties and may be pros­e­cuted if they fail to meet th­ese.

Con­sid­er­a­tion should also be given, to any po­ten­tial taxes which may arise as a re­sult of the trans­fer of your busi­ness to a com­pany. Cap­i­tal Gains Tax, Stamp Duty, VAT and In­come Tax may arise as a re­sult of the pro­posed trans­fer. How­ever with care­ful tax plan­ning it may be pos­si­ble to min­imise th­ese costs or in­deed take ad­van­tage of po­ten­tial tax plan­ning op­por­tu­ni­ties.

If you have any fur­ther queries in re­la­tion to the tax im­pli­ca­tions of in­cor­po­ra­tion, please do not hes­i­tate to con­tact RDA Ac­coun­tants’ Tax man­ager Ge­orge Skelton CTA, ACA, at our Wex­ford of­fice for fur­ther as­sis­tance.

Your one stop shop for ex­pert, in­de­pen­dent money ad­vice

Q&A

Jim Doyle ACMA QFA is a part­ner in RDA Ac­coun­tants of­fer­ing full ac­coun­tancy, busi­ness ad­vi­sory, tax ad­vi­sory and fi­nan­cial ser­vices.

RDA Ac­coun­tants | 5 Up­per Ge­orge Street, Wex­ford | Louisville House, Water­ford Road, Kilkenny | 053 91 70507 | www.rda.ie RDA Wealth Ltd trad­ing as RDA Ac­coun­tants is reg­u­lated by the Cen­tral Bank of Ire­land

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