Incorporate Or Not? The Sole Trader’s Perspective

For anyone involved in managing his/her own business, one of the key decisions is whether or not to incorporate - in other words, should they carry on business as a sole trader, or form a limited company.

Advantages of incorporation include:

  1. Limited liability - the company is a separate legal entity, distinct from its members, and as a result, the debts of the company are not the debts of those members. In contrast, a sole trader is liable to pay the debts of his/her business out of his/her assets, and being unable to pay business debts can lead to bankruptcy.
  2. A company can be sued in its own name - where a company has a legal obligation, any resulting action is taken against the company and not against its members.
  3. Taxation - the income and capital gains of a company are subject to corporation tax. For a company that earns profits, the corporation tax rates are more attractive than the income tax rates that would apply to an unincorporated business.
  4. Ability to borrow or attract investment - A company structure is ideally suited to raising capital. Potential investors can be offered shares in the company as an incentive, and a financial institution can secure a loan to a company by way of a floating charge over the assets of the company.
  5. Perpetual succession - a company will continue until such time that is wound up. The fact that a member dies, resigns, or is declared bankrupt, has no effect on the legal existence of the company.

Disadvantages of incorporation include:

  1. Your abridged company accounts are available for the public to view. - When you file your company’s accounts and Annual Return, these documents will be in the public domain, available for anyone to see on sites such as search4less. This means that your figures will be visible to the public.
  2. Closing down a company is much more expensive than for a sole trader and quite difficult especially where there are outstanding debts and a liquidator is required.
  3. Separation of Finances — while incorporation provides significant protection of the owner’s personal assets from business downturns, it also means that a business owner is not allowed to freely draw money from the company bank account for assistance in meeting their own personal debts.
  4. Paperwork - Sole traders only have one document to file with government bodies each year which is their tax return. However, for a limited company Financial Statements will need to be prepared together with a Corporation Tax return and an Annual Return to the Companies Registration Office each year. All this means that after incorporation you will either have to spend more time preparing and filing paperwork, or you will need to pay your accountant more to do this for you.
  5. Double taxation – double taxation occurs when a company pays corporation tax on profits and is then taxed again as directors are subject to income tax on their salary.


The benefits of incorporation are numerous, and despite the drawbacks noted above, the fact that an incorporated company is separate legal entity and the notion of limited liability, in particular, mean that the benefits of incorporation usually outweigh the drawbacks.

What Questions Do You Have?

We are happy to help. Feel free to contact Jennifer Fulham on +353 (0) 1 677 9000. Alternatively, send us an email: info@cooneycarey.ie

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