A sole trader is a self-employed individual who owns and runs a business personally. A limited company (LTD) is a separate legal entity registered with the CRO. The key difference: a sole trader has unlimited personal liability for business debts, while a limited company's liability is restricted to its assets.
Quick Comparison
The CRO incorporation fee is only one setup cost. Our Irish company-formation cost guide separates statutory fees, provider packages and ongoing administration so you can compare a first-year budget rather than a headline filing charge.
| Feature | Sole Trader | Limited Company (LTD) |
|---|---|---|
| Legal status | Not a separate legal entity | Separate legal entity |
| Personal liability | Unlimited — you are personally liable for all debts | Limited to company assets (in most cases) |
| Registration | Register with Revenue only | Register with CRO + Revenue |
| Setup cost | Free (just register with Revenue) | €50 online (CRO incorporation fee) |
| Annual filing | Income tax return only | B1 annual return (€20) + corporation tax return |
| Tax rate | Income tax (20%/40%) + USC + PRSI | Corporation tax (12.5% on trading profits) |
| Financial privacy | Not on public record | Accounts filed with CRO (public) |
| Business name | Must register if different from your name (€40) | Company name registered on incorporation |
| Credibility | Perceived as smaller | "Ltd" suffix adds professional credibility |
| Raising investment | Cannot sell shares | Can issue shares to investors |
Sole Trader: How It Works
As a sole trader, you are the business. There is no legal separation between you and the business. This means:
- You keep all profits after tax
- You are personally responsible for all debts — creditors can pursue your personal assets (home, savings, car)
- You pay income tax at 20% on the first €42,000 (2026) and 40% on income above that, plus USC and PRSI
- You file a Form 11 income tax return each year
- No CRO registration or annual returns — just Revenue registration
Limited Company: How It Works
A limited company is a separate legal person. It can own assets, enter contracts, sue and be sued in its own name. Key features:
- Limited liability: If the company fails, creditors can only claim against company assets — not your personal assets (unless you gave personal guarantees)
- Corporation tax: 12.5% on trading profits (vs. up to 40% income tax for sole traders)
- Must file annual returns with the CRO (Form B1, €20 online) including financial statements
- Financial statements are public — anyone can see your balance sheet on the CRO register or on Businesses.ie
- Director salary: You pay yourself a salary (subject to income tax/PRSI) and can also take dividends
When to Be a Sole Trader
- You're just starting out and testing a business idea
- Your business is low-risk with minimal debt exposure
- You want minimal paperwork and administration
- Your profits are under ~€40,000–€50,000 per year (tax advantage is limited)
- You don't need to raise external investment
When to Incorporate a Limited Company
- You want to protect your personal assets from business debts
- Your profits exceed ~€50,000+ per year (corporation tax at 12.5% vs. 40% income tax)
- You want to raise investment by issuing shares
- You're tendering for contracts that require a limited company
- You want the credibility of "Ltd" in your company name
- You plan to sell the business in the future (selling shares is simpler than selling a sole trade)
Tax Comparison Example
On €100,000 profit:
| Sole Trader | Limited Company | |
|---|---|---|
| Tax on profits | ~€35,000–€40,000 (income tax + USC + PRSI) | €12,500 (corporation tax at 12.5%) |
| Additional tax when drawing salary/dividends | N/A — already taxed | Income tax on salary drawn |
| Can retain profits in company | No | Yes — tax-efficient for reinvestment |
Note: This is a simplified illustration. Actual tax depends on personal circumstances, salary levels, and dividend policy. Consult a tax adviser.
Can You Switch From Sole Trader to Limited Company?
Yes. Many businesses start as sole traders and incorporate later when profits grow or liability protection becomes important. The process involves:
- Incorporating a new company with the CRO (€50 online)
- Transferring business assets to the company
- Registering the company for tax with Revenue
- Ceasing the sole trade and filing a final tax return
Summary
Sole traders have unlimited personal liability and pay income tax at up to 40%. Limited companies have separate legal status, limited liability, and pay 12.5% corporation tax on trading profits. Sole trading suits low-risk startups under ~€50,000 profit. Incorporation suits growing businesses needing liability protection and tax efficiency. Search Irish companies on Businesses.ie.