TOP QUESTIONS ABOUT COMPANIES                                                                  March 2018

 

Q1. What is a limited company?

Ans.  A company is a separate legal entity separate from the owners ( shareholders ) of the company. The shareholders are not liable for any unsecured debts of the business should the business go bust.

 

Q2. Why carry on business through a company?

Ans. Trading through a limited company provides the benefit of limited liability which is very important and it may also have significant tax benefits.

If a limited company goes bust then unsecured creditors of the business cannot sue the directors/owners for the debts of the business. This is a very important consideration when considering whether or not to trade as a limited company.

The tax benefits of trading through a company is that the tax rate of 12.5% on its trading profits is far less than the top personal tax rates that a self employed person has to pay on their profit. In addition there is the special tax exemption for start-up companies for the first there years of trading.

Also companies can raise funds from investors under the under special tax relief schemes. The most common one is the Employment and Investment Incentive Scheme ( EII ). There is also the Start Up Refunds for Entrepreneurs ( SURP ) scheme. Both of these schemes are subject to a lot of conditions to qualify for the relief but are a very useful way for companies to raise funds in a tax efficient manner.

 

Q3. Who runs the company?

Ans 3. The directors of the company are responsible for running the business of the company and managing its affairs.

 

Q4. Is it not simpler to trade as a sole trader ( trade as self- employed in own name)?

Ans. There is a lot less red tape when trading as a sole trader as compared to a company. The benefits of being a sole trader are-

  • Simpler tax returns
  • No accounts required to be sent to the Companies Registration Office
  • Simpler accounting records

However these benefits can be out weighted by the benefit of limited liability which is the primary benefit of trading through company. If a business goes bust the sole trader is personally liable for all the debts of the business. This is not the position for limited companies when a business goes bust.

 

Q5. When should I form a company?

Ans. Once you have decided to set up in business the next decision is to decide whether or not to trade in your own name or form a company.

Since 2017 forming a company has been made very easy and our online systems are free to use to form your company.

If you need limited liability from the very beginning then form your limited company immediately. If you are not exposed to substantial business debts eg a consultancy business with low overheads then we recommend you trade in your own name initially to see how business develops. As business picks up then form your limited company to take over your business.

 

Q6. I want to form a company – what do I do next?

Ans. You will see some of the steps briefly explained on our home page and we go into them in more detail here –

  • Decide on the company name. The name cannot be too similar to an existing company name. If possible the name should give some indication of the type of business you are involved in. This can help with marketing the business. You can use our free company name checker to see if your proposed name will be approved by the Companies Registration Office.
  • Next is to decide who the shareholders ( owners ) of the company will be. A private company can have up to XXX shareholders. It can also be a single shareholder ( one owner) company. All shareholders have to sign their consent to being a shareholder in the company.
  • Then you have to decide on how many shares will be issued by the company to the shareholders. For most companies this will be 100 shares divided between whoever the shareholders are. Each share will generally have an initial value of €1 for which the shareholder should be paying the company for. As the business grows the shares will hopefully become more valuable.
  • Then you have to decide who will be directors of the company. You need at least one director who need to be a resident of the EEA area. Generally most companies formed in Ireland relate to small business and the directors are resident in Ireland. If none of the directors are resident in an EEA country then a special bond is required by the Companies Registration Office. All directors have to sign their consent to being a shareholder in the company.
  • Every company needs someone to act as Company Secretary. This person is often a director of the company as well. However if there is only one director for the company then you must have a different person to act as Company Secretary. The vast majority of Irish companies are owed by couples and one could be the Director and one the Company Secretary.
  • Finally every company must have a registered office. This is a designated address in the Republic of Ireland for receipt of correspondence. This could be your home address if trading from home or a business address if you have a business premises.
  • Once all of the above have been decided upon then complete the six easy steps in our software system to generate the completed application form A1 to form your company.

 

Q7. When do I have to register the company for Tax purposes?

Ans. You can register the company for tax purposes after the company has been formed. You should do this as soon as possible after the formation and our software systems will generate the completed application Company Tax Registration Form free of charge.

 

Q8. I am not taking on any employees initially so does the company have to register as an employer for tax?

Ans. Yes as the directors of the company are treated as employees of the company even if not taking a salary immediately.

 

Q9. Does the company have to register for VAT?

Ans. A company is obliged to register for Vat if sales of its goods are likely to exceed €75,000 per annum or if it is engaged in providing services in excess of €37,500 per annum.

The most important point for small business is to ensure vat registration is on what is called the cash basis of accounting for vat. This means you only pay over Vat to the revenue when you get paid. Our software AUTOMATICALLY APPLIES FOR THIS BASIS OF DEALING WITH YOUR VAT RETURNS as it is very important for cash flow purposes.

It is also worth noting that while you pay vat on your sales when you get paid you can reclaim vat you incur on costs immediately ie based on the date invoiced to you provided paid by you within six months. So you could have received a vat refund and or vat credit before you have to pay a supplier. This is Also a very important cash flow benefit.

 

Q10 – I want to pay tax at 12.5% instead of the normal self – employed tax rates so I am going to form a company. Does this make sense?

Ans – It could make sense provided the company makes profits after paying you a salary. If you depend on the company for a salary and your salary is the same as the profit the company makes then for tax purposes the company will not have a profit so will not pay any tax. However you will pay tax on your salary in the normal way.

Provided the profits of the company exceed your salary requirements then the company will pay less tax than if you were self- employed. The after tax profits can accumulate in the company and be used to help expand the business or make investments.

 

Q11. I read somewhere that companies are better for pension funding purposes. Is this correct?

Ans. Yes it can be and contributions into a Revenue approved pension plan qualify for tax relief. There are restrictions on the amounts that a self employed person can make for tax purposes into a pension scheme. These restrictions are both age and income based which can limit the amount of tax relief that can be received.

However for companies the amount that can be paid into a pension fund are based reaching a €2m pension fund which can mean greater contributions can be made by a company to a revenue approved pension scheme.

 

Q12. What extra tax obligations apply to a company as compared to a sole trader/self-employed person?

Ans. None! If you are in business the same rules for VAT and Employers will apply so nothing extra involved here.

If you are self-employed/sole trader you have to send in an annual tax return. So does a limited company. However a company pays Corporation Tax instead of Income Tax payable by a self-employed/sole trader.

The corporation tax rate is 12.5% for business profits and 25% for investment and rental income. There can be an- add on where the 25% rate applies which brings the tax rate up to 40%.

The tax rules for calculation the company tax are broadly similar to those that apply to a self-employed/sole trader.

The tax payment dates for companies depend on the accounting period of the company. If using the calendar year end as your company accounting year end then a preliminary tax payment is due in November each year with the balance payable if any owed the following September.

Our unique small company accounts tax and accounts package will generate the annual company tax return and also calculate the company tax bill.

 

Q13. What Company law rules apply to companies?

The Companies Acts contain numerous rules about the regulation of limited companies. These rules lay down very specific procedures that have to be followed by companies. In reality most of these rules only affect large companies.

For small business the most important rules relate to the holding of an annual shareholders meeting ( AGM ) to approve the annual accounts of the company. These accounts then have to be sent to the Companies Registration Office along with an Annual Return Form B1.

The type of accounts and amount of information that has to be disclosed to the Companies Registration Office varies depending on the size of the company based on three separate factors as  follows –

  1. Amount of annual turnover.
  2. The number of employees.
  3. The balance sheet value of the business based on gross assets.

For small ( micro ) companies –

  1. whose annual turnover does not exceed €700,000 and
  2. whose number of employees does not exceed 10 and
  3. whose balance sheet value does not exceed €350,000

very little information has to be disclosed to the Companies Registration Office and only a very simple set of annual accounts needs to be sent into the Companies Registration Office.

Our unique small company accounts tax and accounts package will automatically generate the Companies Registration Office Annual B1 Return Form and also the accounts that need to be sent to the Companies Registration Office.

Apart from the annual Companies Registration Office B1 Return Form the only other interactions with the Companies Registration Office for small companies is likely to be whenever there is a change in the Directors or Company secretary or change of registered office. A company is obliged to notify the Companies Registration Office of any such changes by the completion of a Companies Registration Office Form B10 for changes in directors or company secretary and a Companies Registration Office Form B2 for a change of registered office. These forms are very easy to complete and there is no charge by the Companies Registration Office if completed online.

 

Q14. What happens if my company never commences to carry on business?

Ans. Even though the company does not carry on any business the company is still obliged to file annual returns with the Companies Registration Office along with a simple set of dormant accounts.

Our unique small company accounts tax and accounts package will automatically generate the Companies Registration Office Annual B1 Return Form and also the dormant accounts that need to be sent to the Companies Registration Office.

It is very important that you do this every year as you will be prosecuted if you do not do so. If you think it is unlikely that the company will ever start trading then you would be better of getting the company voluntarily struck off to save the annual costs of completing dormant accounts and the Annual B1 Return Form for the Companies Registration Office.

 

Q15. What happens if my company ceases to carry on business?

Ans. There are separate issues involved re Tax and the Companies Registration Office.

You should cancel your tax registrations and ensure that all tax returns due to the date of ceasing to trade are made.

Even though the company has ceased to carry on any business the company is still obliged to file annual returns with the Companies Registration Office along with accounts.

Our unique small company accounts tax and accounts package will automatically generate the Companies Registration Office Annual B1 Return Form and also the accounts that need to be sent to the Companies Registration Office.

It is very important that you do this every year as you will be prosecuted if you do not do so. If you think it is unlikely that the company will ever restart trading then you would be better of getting the company voluntarily struck off to save the annual costs of completing dormant accounts and the Annual B1 Return Form for the Companies Registration Office.

 

Q16- What happens if the company has no money to pay for getting tax returns and company accounts up to date?

ANS. You would need to get onto both the Revenue Commissioners and the Companies Registration Office to let them know the position without delay. Both bodies are likely to insist that all outstanding returns are brought up to date.

If the company is insolvent then you may need to consider liquidating the business.

 

Form Your New Company Now

See Also Tax Benefits Of Trading Through A Company