When you start a business, you must decide on a legal structure for it. Usually you’ll choose either a sole proprietorship, a partnership, a limited liability company (LTD), or a corporation. (Also, some businesses choose to operate as cooperatives.) There’s no right or wrong choice that fits everyone. Your job is to understand how each legal structure works and then pick the one that best meets your needs. The best choice isn’t always obvious. You may, after reading this section, decide to seek some guidance from a lawyer or an accountant or a professional company formation agent, like Irish Company

For many small businesses, the best initial choice is either a sole proprietorship or, if more than one owner is involved, a partnership. Either of these structures makes good sense in a business where personal liability isn’t a big worry — for example, a small service business in which you are unlikely to be sued and for which you won’t be borrowing much money. Sole proprietorships and partnerships are relatively simple and inexpensive to establish and maintain.

Forming and operating a company is more complicated and costly, but it’s worth it for some small businesses. The main feature of LTDs that attracts small businesses is the limit they provide on their owners’ personal liability for business debts and court judgments against the business. Another factor might be income taxes: You can set up an LTD or a corporation in a way that lets you enjoy more favorable tax rates.In certain circumstances, your business may be able to stash away earnings at a relatively low tax rate. In Ireland, corporate tax is only 12.5%. In addition, aLTD may be able to provide a range of fringe benefits to employees (including the owners) and deduct the cost as a business expense.

If your business will have several owners, the LTDis more flexible than other legal forms in the way you can parcel out profits and management duties.

Keep in mind that your initial choice of a business form doesn’t have to be permanent. You can start out as sole proprietorship or partnership and later, if your business grows or the risks of personal liability increase, you can convert your business to an LTD

Cooperatives
Some people dream of forming a business of true equals — an organization owned and controlled democratically by its members.

These grassroots business organizers often refer to their businesses as a group, collective, or co-op — but these are usually informal rather than legal labels. Everyone who starts a business with others needs to select a legal structure. Generally, this means picking one of the traditional formats: partnership, limited liability company (LTD), or, perhaps, a nonprofit corporation

Ways to Organize Your Business

Type of EntityMain AdvantagesMain Drawbacks
Sole ProprietorshipSimple and inexpensive to create and operate

Owner reports profit or loss on his or her personal tax return

Owner personally liable for business debts
General PartnershipSimple and inexpensive to create and operate

Owners (partners) report their share of profit or loss on their personal tax returns

Owners (partners) personally liable for business debts
Limited PartnershipLimited partners have limited personal liability for business debts as long as they don’t participate in management

General partners can raise cash without involving outside investors in management of business

General partners personally liable for business debts

More expensive to create than general partnership

Suitable mainly for companies that invest in real estate

Nonprofit CorporationCorporation doesn’t pay income taxes

Contributions to charitable corporation are tax deductible

Fringe benefits can be deducted as business expense

Full tax advantages available only to groups organized for charitable, scientific, educational, literary, or religious purposes

Property transferred to corporation stays there; if corporation ends, property must go to another nonprofit

Limited Liability Company (LTD)Owners have limited personal liability for business debts even if they participate in management

Profit and loss can be allocated differently than ownership interests

More expensive to create than partnership or sole proprietorship
Limited Liability PartnershipMostly of interest to partners in old-line professions such as law, medicine, and accounting

Owners (partners) aren’t personally liable for the malpractice of other partners

Owners report their share of profit or loss on their personal tax returns

Unlike a limited liability company or a professional limited liability company, owners (partners) remain personally liable for many types of obligations owed to business creditors, lenders, and landlords

Often limited to a short list of professions

 

We, at Irish Company, could assist you with setting any type of legal structure in Ireland and abroad. Feel free to ask us any questions about our products and services as you explore the sitewww.irishcompany.eu or send us an email to contact@irishcompany.eu with your questions and we will get back to you within 30min!