Sole Traders or Partnerships wishing to incorporate their businesses in Ireland may avail of a wide number of benefits.The Corporate Veil
The ‘Corporate Veil’ is one of the alluring features of incorporation – limited liability. The House of Lords in the UK firmly upheld this doctrine in the landmark case of Salomon v A Salomon & Co Ltd [1897] AC 22. In this case it was ruled that the creditors of an insolvent company were not entitled to pierce the corporate veil to sue the shareholders of the company for outstanding debts, the main issue being that a company is in fact a separate person in the eyes of the law. This doctrine has remains one of the key considerations for sole traders who are considering the next stage in their development. In the current economic climate it presents incorporation as a viable option for many businesses.
Other Benefits of Irish Incorporation
Limited Liability is of course the most obvious incentive, however there are several other reasons why a Sole Trader might decide to incorporate their business in Ireland and these are as follows:
- The 12.5% Corporation Tax Rate in Ireland is very appealing when compared to the income tax rates applicable to Sole Traders;
- Tax relief for Intellectual Property and Research & Development can offer significant savings for companies
- Tax planning opportunities can be obtained in respect of the change of ownership between generations;
- Ireland has numerous Double Taxation Treaties;
- The name of the Company is protected and the Company has unlimited existence; and
- The transfer of ownership is less complex and the ownership may be assigned to several persons.
Additional Considerations
Additional factors which should also be considered are that Financial Statements are required to be prepared and publicly filed in the Companies Registration Office; the Directors of the Company have legal responsibilities to which they must adhere and additional taxation may arise in certain cases.
Incorporating your business is a major decision which should be well planned and for which advice should be sought from professionals. There are benefits to a limited liability corporate entity which should be considered by Sole Traders and other ‘unlimited persons’, wishing to set up a business.
When deciding whether to incorporate, a business person must weigh up the cost of doing so, specifically in relation to Capital Gains Tax, Stamp Duty and the variance between Corporation and the current high rates of Income Tax.
Please see https://www.bjdennehy.ie/taxation/business-advisory-2/ for additional commentary on this matter.