No changes in the income tax rates. Tax credits and rate bands have been reduced by approximately 10% across the board.
UNIVERSAL SOCIAL CHARGE (USC)
The Universal Social charge has been introduced to replace the income levy and health levy as and from 1 January 2011.
PRSI remains as a separate charge for the moment. The new rates for the USC are as follows:
Income up to €10,036 - 2%
Income from €10,036 to €16,016 - 4%
Income above €16,016 - 7%
Over 70 years of age the rates are as follows:
Income up to €10,036 - 2%
Income above €10,036 - 4%
Income under €4,004 per annum is exempt.
The PRSI ceiling for employees of €75,036 has been abolished effective from 1 January 2011. PRSI rate class S for self-employed individuals is increased from 2% to 4% from 1 January 2011.
CORPORATION TAX EXEMPTION FOR START UP COMPANIES
The 3 year tax exemption for start up companies has been extended. However, the scheme has been modified so that the value of relief will be linked to the employer’s PRSI paid by a company in an accounting period subject to a maximum of €5,000 per employee.
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GUIDE TO STARTING A BUSINESS
Sole Trader, Partnership or Limited Company.
The first decision to make is whether to start trading as a sole trader or a limited company. Each has their benefits and disadvantages. The choice of legal structure depends on the personal tax circumstances, financial resources, degree of control sought and the level of risk assessed. Details of the formats and advantages and disadvantages of each are listed below:
A sole trader is a business that is owned and controlled by one person. This structure is very attractive for those entrepreneurs who wish to retain total control and ownership of the enterprise. In legal terms a "sole trader" is described as a person trading under his/her own name, or a registered business name. Many sole traders who decide to operate under their own name can do so without any particular problem. However, if you use a name other than your surname, you must register the name in accordance with the Registration of Business Names Act of 1963. The cost of registering a business name is €30
Advantages of the Sole Trader
• Very simple to set up. No legal formalities compared to other structures.
• The sole trader is not required to register public accounts therefore confidentiality is maintained.
• The income from the business is personal income and most business expenses can be offset against it for tax purposes. The tax is paid at personal rates.
• Total responsibility for the business is in the hands of the owner.
• The relative ease of winding up the business.
Disadvantages of the Sole Trader
• The owner is personally liable for all debts of the business.
• Since there is only one owner of the business, there is a limit to the amount of capital that can be raised for operations. Many may stay small because of financial restrictions.
• The life of the business depends entirely on the owner
A partnership is in essence an extension of the concept of the sole trader, which covers cases where two or more people join together to start a business. Partnerships can have up to twenty members, some of whom may be "sleeping partners", who have contributed capital to the enterprise, but who have no say in the running of the business.
While not a legal requirement, most partnerships start with the drawing up of a formal agreement. With the help of an Accountant and Solicitor, the agreement would typically cover such areas as:
• Profit Sharing
• Voting Rights.
Advantages of a Partnership
• Increased sources of capital and credit.
• Improved decision-making potential.
• Improved chances for expansion.
Disadvantages of a Partnership
• All partners are liable for the debts of the business on a joint and several basis.
• While all partners may have a say in the running of the business, managerial problems may arise.
• Unless otherwise agreed, the consent of all partners is needed before a new partner can be introduced.
A limited company is a separate legal entity. It is quite separate from its owners, who are shareholders and from its directors, who make decisions on behalf of the company.
As a separate entity it has sole responsibility for its debts, which frees its owners from this responsibility. Its liabilities are limited to the paid-up share capital - hence the company is said to have "limited liability".
Advantages of a Limited Company
• Limited liability - shareholders are only liable to lose the share capital they subscribe. Shareholders personal assets are protected.
• Greater company pension scheme can be secured.
• Greater ability to raise finance by the issue of shares and also under the Business Expansion Scheme.
• Ownership of the enterprise is spread over a greater number of people.
• Personal tax advantages can accrue.
Disadvantages of a Limited Company
• Limited liability may be negated in practice by lenders seeking personal guarantees.
• Adhering to legislation contained in the Companies Act can be costly and time consuming.
• The need to prepare and file audited accounts.
• The payment of additional taxation when accumulated profits are withdrawn from the company.
• The loss of profit-sharing flexibility.
Forming a Limited Company
The current cost for formation of a company and registration with the Revenue Commissioners is currently approximately €650
Entrepreneur(s) should be aware of the following when forming a limited company:
• The company must have at least one shareholder and two directors.
• When forming a company from scratch, a suitable name will have to be chosen and two documents, the Memorandum and Articles of Association must be filed with the Registrar of Companies.
• A Certificate of Incorporation is necessary before trading can commence.
• Where companies are bought off the shelf, the name may be unsuitable and amendments to the Memorandum and Articles of Association may be necessary.
BUYING AN EXISTING BUSINESS
By buying an existing business that is currently trading, many problems associated with a start-up can be avoided. A successful business will have demonstrated the ability to attract customers, control costs and operate profitably.
Additionally, it may be possible to buy an on-going business at a bargain price. While this option may appear to be attractive, the prospective entrepreneur before deciding whether or not to buy, would need to ask a number of questions. Some of the most important ones are as follows:
• Why is the business being sold?
• What is the present physical condition of the business?
• What is the state of the assets of the business?
• How many of the staff are going to remain?
• What type of competition does the business face?
• What is the financial state of the business?
Satisfactory answers are need to the above questions due to the many commercial, legal and taxation implications of buying an existing business. Ideally, the would-be entrepreneur should look at businesses that are well established in the market place with tried and tested products.
A franchise is a system of distribution which enables a franchisee to handle or sell a specific product or service under certain mutually agreed upon conditions. Three main types of franchise systems are available. One type includes manufacturers who use franchises as a way of distributing their products, such as, car manufacturers. Other franchise companies sell products at wholesale to franchisees who then retail those products.
Finally there is the franchise system that is most common today, where a franchisee is given a name, an image and a standardised method of doing business such as, Abrakebabra, Snap Printing etc.
The main attraction of entering business in this way is that the franchisee has a business format or product which has already been market tested and has been found to work. Franchises may offer other benefits to the prospective entrepreneur:
• A recognised name which the public is already aware of and which has credibility with suppliers;
• Assistance during the start-up period;
• Established operational standards;
• Assistance with site location and development;
• Management and operational training;
• Rights to the franchise in a given area.
While the advantages may appear to be very attractive, the prospective franchisee must weigh them against the drawbacks. With business format franchising there is virtually no scope for individual initiative in matters relating to the product, service or design. In addition, the franchiser can demand high standards of maintenance, appearance and packaging in whatever the franchise entails. As well as paying for the name, a regular royalty is paid to the franchiser which is based on gross turnover or on profits.
While the franchisee in many respects operates the business independently he may not be at liberty to sell the franchise. Because a proven track record may exist for a product or service, a franchise may be a very good way of starting a business. However, there are many matters that the prospective entrepreneur should take into account when evaluating a franchise. The following are some of the matters to consider:
The Product or Service Offered
There is nothing wrong with a product or service being new. However, it should have been tested and found to work, at least for a couple of years, in a location similar to that for which it is now being offered.
The franchisee should check to see whether the franchise is in existence or not.
The Franchise Package
To a large extent the package outlines the nature of the franchiser/franchisee relationship. Given that the franchiser is selling a package of proven know-how it follows that it should:
• Reduce inherent risks of starting up a new business;
• Enable a franchisee to be his/her own boss by using a pre-designed business format with the full support of the franchiser;
• Provide precise details of how the business should be run by way of an operational manual. The manual should not only cover general business operations but also advise on most possible scenarios identified as problems during the initial pilot scheme.
The Financial Implications
An important financial consideration is the franchiser’s initial capital franchise fee. The franchiser is usually entitled to recover research and development costs by such means. Careful examination of how the franchiser obtains his profit is also necessary. Normally, the income is from one source, either a percentage of turnover or as a mark-up on goods supplied. In addition, the franchiser may place a levy on turnover as a contribution to overall franchise advertising.
The Experience of Other Franchisees
The most reliable method of evaluating a franchise is to contact other franchisees to ascertain their relative success. Ideally they should be those who have been in business for a few years and whose operation is similar to the one you are contemplating.
Finally, the prospective franchisee should examine the Contract. The franchise agreement which details the purchase terms and the operating conditions should be drawn up by a Solicitor with experience in this area.