In the last post of the Start My Own Business (SMOB) series and the last post of the Start My Own Petsitting Business (SMOPB) series, I have talked about naming a business.
So now that you have an idea of a name of your business, the next thing you need to decide is on the type of structure.
In Ireland, you can set up a business as a sole trader, a partnership or a limited company. All of them have pros and cons, and I am going to explain the difference here today.
- Easy to set up, you just need to register with Revenue. You need to fill in the Registration Form TR1. Hand in to the Revenue, that’s all.
- You probably won’t need an accountant, you basically just do your income tax as your business is YOU.
- It will be very difficult to sell your business if you choose to do so one day, because again your business is YOU.
- Tax rate is horrible, you are paying the same tax rate as someone who is an employee but without the PAYE tax credit! On top of that, since you will be paying Class S PRSI, you will not be covered for schemes/benefits like Jobseekers, Illness, Dental and Optical Benefits etc. (This government keeps saying they are supporting SMEs, it’s a joke from my past 7 years of experience as an SME!)
- Your personal asset can be used to pay off creditor if your business fails.
- Easy to set up, basically just like sole trader. Instead of one sole trader, you have two (or three) sole traders. You need to register with Revenue.
- Same as sole trader, high tax rate, no PAYE tax credit, no social protection, horrible.
- On top of that, partnership is one of the hardest things to do and most of them failed. (Please do further research on business partnership and why they fail, I don’t have a lot of experience on this subject matter. In fact, I have attempted to start businesses with various friends since I was in college and it never took off. The only time a business plan actually took off is this time! And it was the first time I am doing it alone since the very beginning!)
- I would highly recommend you to get a lawyer to draft a proper agreement between partners. Make sure there is very clear guideline as in who does what and what happen if one of them wants to withdraw from the partnership, etc. You are not required to have such agreement. In fact, lots of people don’t have! It might sound crazy but most people just sort of wing it! They assume the partners understand who is supposed to do what. Especially, very often people get into partnership with their friends they assume everything will be ok. Another thing is what if one of the partner is seriously ill or pass away? Who is going to take over his part of business? Seriously, talk to a lawyer and draft a document.
Disclaimer: Some of you might know that I have recently started a business with a friend, but it’s a limited company so this legal problem doesn’t apply. However, it is still a learning curve for me to learn to work with a friend. Friendship and business relationship are two different things!
- Favourable tax rate.
- Your personal asset is protected from business failure.
- Easy to sell your share or pass on to your family if you decide to retire or in case of decease
- Much more complicated to set up, you might need a lawyer unless you are good at handling paperwork. You are required to have one, but you might want one.
- You will probably need an accountant as well because the yearly returns are much more complicated.
- There is a lot more fees when dealing with administrations.
- As a result, it is more expensive to set up because you need to pay for all of the above 3 things.
I personally decided on starting as a sole trader at the end, because I wanted to keep things simple at the time. I wasn’t sure how full on I wanted to get into being self employed, I was still a bit scared. It’s been 7 years, I might have to review this status at some point. Being a limited company might start to give me more advantage at this point.
But you are like the 2009-me, you still had a day job, you weren’t sure if your business idea would take off. I would highly recommend you to just start as a sole trader. Here is a step by step guide what to do.
How to register as a sole trader:
- Download the TR1 form on Revenue website. OR if you are registered with myAccount service or Revenue Online Service (ROS), you should use that to register.
- Done! You are now a business.
- (Optional) If you want to register a business name, please refer to my previous post.
After you have registered as a sole trader, nothing drastic will happen to you, don’t worry. The only difference that will happen to your life is that Revenue will remember to chase you for your tax return once a year! And if at some point, you stop doing your business, you can inform them and they will stop sending you a tax return form every year. So it really is the easiest way to start a business. I highly recommend if you are on the fence about starting a business. It’s so easy to do, you nearly have nothing to lose. (Well, time and 20 Euro if you register a business name…)
Do you have any question regarding starting a business? Please feel free to be in touch or leave a comment below. I will try my best to answer.
Coming up next: How to register a domain name?