Why Do I Need to Trade Through a Limited Company?

When should a sole trader become a limited company? What type of company structure reflects your needs? One of the most common questions asked by Contractors is whether to trade as a company or as an individual. The decision has implications for tax, legal and financial responsibilities, the amount of paperwork you will need to complete and how your peers view you. There is no straightforward answer, because different legal structures suit different situations. The most appropriate structure will depend on a number of factors, including the tax implications, the legal entity, ownership and liability. There are benefits to operating under a limited company. It grants access to the many clients who will not engage with sole traders, there is also the fact that your personal assets are protected against company debts, so in situations where the client passes on the responsibility and risk from a project to you – which is an everyday part of life as a Contractor – personal property, such as your house, has a level of protection. Most Contractors choose to operate as a limited company simply because so many potential clients and agencies will only do business with individuals who operate in this way. The downsides of the limited company are more rules and regulations and you can't just withdraw money from the business without formally recording it as a salary. When deciding which option is right for you – trading as a company or as an individual – look at the type of clients you will be pitching to for work. If they require that you are a limited company in order to engage with you, it would be unwise not to comply. You also need to look at the environments you are likely to be working in and the risks involved. If your work includes highly sensitive IT security projects for global banking organisations, for example, protection from the risks involved if you or someone else makes a mistake is likely to be wise. For Contractors looking for a simpler approach, working as a sole trader is a relatively uncomplicated choice that will allow you to focus fully on the important things – getting work and then delivering it to a high standard. To operate as a sole trader or limited company, please contact Icon Accounting on 01-8077106 or info@iconaccounting.ie and we will be happy to advise you and to set up your business!