Deciding when to incorporate your business is one of the more consequential choices you’ll make as an entrepreneur in Ireland. It affects everything from your legal liability and tax obligations to whether you can apply for funding supports. While it may seem like a formality, incorporation fundamentally changes the nature of your enterprise.
Key triggers for incorporation
While there’s no universally ‘right’ time to incorporate, several milestones should prompt serious consideration. It’s common practice for people to start off in business as a sole trader – it’s easy to get set up as there are fewer regulations and little cost. There are scenarios where people will have to start out as a limited company, but that typically depends on their exposure to liability.
It’s not unusual for a new business to make a loss in Year 1, break even in Year 2 and then finally make a profit in Year 3. The question people often ask is how long do you stay as a sole trader and when is the right time to become a limited company? Here’s what you need to know to judge when that perfect moment is.
1. Revenue growth
If your turnover is increasing steadily, incorporation may offer various tax advantages, which we cover more fully in the blog The Tax Benefits Of Running A Limited Company. There are a few areas where limited companies can save money, whereas if you’re a sole trader all the profits of the business are taxed at income taxed rates.
In Ireland, personal income tax is high (potentially at rates as high as 52%, although how much you pay will depend on how much you’re earning). Corporation tax on the other hand is reasonably low, at 12.5%, and this makes a real difference. Maybe once you’re making over €60,000 a year and certainly if you’re making over €100,000 in profits, that’s the trigger point where it makes sense to become a limited company.
As an owner of a company, you’re entitled to pay yourself a salary. You can both pay yourself a salary and pay into a pension pot in the most tax-efficient way. For example, in 2025 the lower tax band of 20% (as opposed to 40%) has the following cut-off points: €44,000 for a single person / €48,000 for a lone parent / €53,000 for a married couple with one income / up to €88,000 for a married couple with two incomes.
2. Hiring employees (and being one)
Once you start hiring staff, a company structure provides a cleaner separation between your personal finances and those of the business. It also reduces personal exposure in the event of disputes or litigation. Revenue and compliance requirements grow more complex as well, and operating through a company can streamline these processes.
As an employee of your limited company, you can claim expenses – which is something you cannot do as a sole trader. Claiming mileage expenses can be one advantage, especially when using your personal vehicle for business. You’re entitled to claim mileage at civil service rates, and these rates are very generous. This means you could be claiming anything from €300-€500 a month tax-free from your business. The same applies to travel costs, lunch allowances and overnight allowances.
Another advantage is being able to make greater pension deductions. This allows you to transfer money into your pension through the company. There are a range of extra costs that you can put through a limited company. That alone will outweigh the actual extra costs involved in running a limited company and this will benefit you in the long run as your business grows.
3. Taking on investment or partners
As your business grows, you could have employees, a lease for your premises, contract jobs from third parties, and you might also want investors to invest in your business. This is difficult to do when you’re a sole trader, as you can’t give out shares on a business that is personally guaranteed.
A limited company is a separate entity to you. A company structure allows for issuing shares, formalising ownership stakes, and setting clear governance rules. Investors are extremely unlikely to put money into a sole trader structure.
If you hope to sell your business one day, or pass it on, a limited company makes this process far more straightforward. A company can continue indefinitely, independent of its directors or shareholders. This continuity is essential for succession planning, and makes the business more attractive to buyers.
4. Risk exposure
In high-risk industries such as construction, food production, consultancy, or tech, incorporation provides a crucial layer of legal protection. Should anything go wrong, your personal assets (home, savings, etc.) are not automatically at risk. This alone can be reason enough to incorporate. If you were to open a restaurant, for example, you would have a lease, employees, and customers from day one. In this situation, it would be suitable to start off as a limited company.
5. Professional perception
Clients, especially larger firms or in more traditional sectors, often view incorporated companies as more professional and trustworthy. Some contracts or tenders are open only to companies. If you’re aiming to work with government bodies, corporates, or on public frameworks, the various requirements they stipulate may mean that incorporation is effectively obligatory.
Alternatives to a company structure
So, starting as a sole trader is fitting, especially in the first year or two while profits are lower and you’re not paying much personal tax either. Progressing to a company after a few years, when the business is bigger and more profitable, tends to make a lot of sense. There are a few company structures available in Ireland.
Sole trader
The simplest business structure where an individual operates as the business entity. There’s no legal distinction between the person and the business, meaning unlimited personal liability for business debts. All profits are taxed at personal income tax rates (income tax, PRSI, USC). Setup is straightforward – just register with Revenue for tax purposes. Suitable for low-risk businesses, freelancers, or those starting out with lower profits where the tax efficiency of incorporation isn’t yet beneficial.
Limited Company (Ltd)
A limited company is a separate legal entity from its owners (shareholders), offering protection from personal liability for business debts. Directors are only liable up to the amount of their shareholding. Companies pay corporation tax at 12.5% on trading profits, and owners can take money out through salary (subject to income tax/PRSI/USC) or dividends (subject to dividend withholding tax). Companies must file annual returns with the CRO, maintain statutory books, and prepare annual accounts. This structure is ideal for businesses with higher profits, those seeking investment, or where liability protection is important.
Designated Activity Company (DAC)
A DAC is similar to a private limited company but has a clear objects clause that limits what activities the company can engage in. This structure replaced the old “private company limited by shares” format under the Companies Act 2014. DACs have the same limited liability protection and 12.5% corporation tax rate as regular limited companies, but they’re required to have at least two directors (compared to one for a Ltd) and can’t dispense with holding an AGM if they have two or more members. They’re typically used by subsidiaries of foreign companies, financial services firms, or businesses that want to clearly define and restrict their permitted activities.
Company Limited by Guarantee (CLG)
A CLG has no share capital – instead, members guarantee to contribute a specified amount (usually €1) if the company is wound up. These companies typically don’t distribute profits to members and are commonly used by charities, sports clubs, professional bodies, and not-for-profit organisations. They can apply for charitable tax exemptions if they meet Revenue’s criteria. CLGs must have at least two directors and file annual returns with the CRO. While they have limited liability protection like other companies, their structure makes them unsuitable for profit-distribution businesses, as any profits must generally be retained for the company’s stated purposes.
Partnership
Partnerships are like a sole trader structure where two or more people carrying on business together with a view to profit. Each partner is personally liable for all partnership debts, meaning one partner’s actions can create liability for all others. Partners are taxed individually on their share of profits at personal income tax rates. Partnerships must register with Revenue and file annual returns, but don’t need to file with the CRO.
When I talk to clients, I generally suggest that they only go into partnerships with family members or people that they have a lot of background with. It’s essential that you have a strong partnership agreement that outlines profit-sharing, decision-making, and exit arrangements. If you’re contemplating a partnership, consider the risks carefully and make sure that you’re in business with a suitable partner.
Limited Liability Partnership (LLP)
For law firms, an LLP combines elements of partnerships and limited companies. Partners have limited liability (similar to company shareholders) but the business is taxed like a partnership, with profits flowing through to partners’ personal tax returns. Each partner’s liability is generally limited to their agreed contribution. LLPs must file annual returns with both the Law Society and Revenue.
The incorporation process
Incorporating a company in Ireland is relatively straightforward. Depending on the structure you’ve opted for, you’ll need to register with Companies Registration Office (CRO) or the Law Society, choose a company name, prepare a constitution, appoint directors, and decide on share allocations. There are plenty of company registration firms in Ireland that will take care of the incorporation paperwork for a fee. While possible, incorporating without professional advice often leads to problems later. The company structure you choose, share arrangements, and initial decisions have long-term consequences.
Once registered, the company must keep proper books, file annual returns, and meet other ongoing compliance obligations. You’ll also need a business bank account in the company’s name, and to register for corporation tax, VAT (if applicable), and possibly as an employer.
Prepare for some basic running costs starting at around €1,500 per year as you will need an accountant to prepare your Financial Statements and submit your Annual Return to CRO (Form B1). You may also outsource your bookkeeping and payroll, which will have a cost. As a shareholding director, you will be expected to submit of an income tax return (Form F11) each year and may want an accountant to handle this too. So there are a few costs to consider, although in my opinion the tax benefits of running as a limited company easily outweigh these.
Downsides and obligations
As you can see, a limited company does bring administrative overhead – more discipline, more paperwork, and more accountability. You’ll need to stay on top of all kinds of legal and statutory obligations on behalf of the business. Directors carry legal duties and must act in the company’s best interests, not their own.
You’ll also lose some flexibility. As a sole trader, you can take money in and out of the business at will. In a company, all income belongs to the company, not to you personally, and extracting it involves salary, dividends, or loans – each with their own rules and tax implications.
Incorporating your business is a structural shift, but one that’s a natural part of growth for many Irish entrepreneurs. If your turnover is rising, you’re hiring, facing risk, or seeking investment, incorporation becomes not just advisable but essential. If you’re unsure about the numbers or have a complex situation, it’s worth speaking with an accountant or business adviser. The right structure can protect your assets, improve your tax position, and give your business the foundation it needs to grow.
