Sole Trader or Limited Company
There are many companies in the world with different methods of conducting business to customers. You need to find out what will benefit your ideas, your budget, and your goals best. This article will explain the two types of companies most people choose when starting out: Sole Trader and Limited Company. Both have different ways of managing shares and property and are run differently.
What is a Sole Trader?
A Sole Trader is a company that is run by one person who makes all decisions for the company, hires other employees, and it uses personal assets to pay creditors if the business fails. It has a separate legal existence, owns its property and records, and is liable for them.
If you want to become a Sole Trader, then you need to register yourself as a self-employed person through Revenue if your net income is over €5,000, and you need to pay Income Tax, Pay-Related Social Insurance (PRSI), and a Universal Social Charge (USC) on every net business profit. It is very simple to become a Sole Trader, but you need to be prepared in case your business goes into debt.
What is a Limited Company?
Just like with a Sole Trader, a Limited Company also has a separate legal existence and is distinct from the people running it. It owns its own property and takes responsibility for it. However, its shares are owned by shareholders, and these shares are limited to their price if the company falls into debt. It has limited liability and personal assets cannot be used to pay debts or creditors.
Unlike a Sole Trader, there are five types of limited companies to choose from: A Private Company Limited by Shares (LTD), a Designated Activity Company Limited by Shares (DAC), a Company Limited by Guarantee Having a Share Capital (DAC), a Company Limited by Guarantee Not Having a Share Capital (CLG), and a Public Limited Company (PLC).
A LTD company has limited liability on its members’ unpaid shares and how many they have. It can have a maximum of 149 members, with one director and a separate secretary. It does not have a memorandum, it cannot become a credit institution or an insurance undertaking, and it has no stated objects in its constitution.
A DAC company is limited to its shares like an LTD, and it has a maximum member count of 149. However, a DAC requires two or more directors and it has a memorandum in its constitution, which states its objects.
A DAC company limited to its share capital is private with a maximum member count of 149. Members have a liability on their unpaid share amount and their contribution amount to the company’s assets, which cannot be less than €1. It has specific objects in its constitution and it requires at least two directors.
A CLG company is a public type that has limited liability on its member’s contribution amount to the company, which cannot exceed a certain amount and must not be less than €1. It must have two or more directors.
A PLG company, another public type, limits liability to the unpaid shares that its members have. It must have two or more directors, and it must comply within the Companies Act.