This article is for Irish entrepreneurs and business owners who are choosing between a private limited company (LTD) and a Designated Activity Company (DAC) for their new venture or considering converting their existing structure.
If you're confused about which company type gives you more flexibility, what the practical differences are in day-to-day operations, or when a DAC might actually be better than an LTD, this guide covers the key operational differences, regulatory requirements, and specific scenarios where each structure makes sense.
Key Takeaways
LTDs require only one director and allow any lawful business activity without constitutional restrictions or amendments.
DACs must specify permitted activities in their constitution and require minimum two directors for governance decisions.
Choose LTD for 95% of businesses; only use DAC for joint ventures, regulated activities, or special purpose vehicles.
Both structures pay identical tax rates: 12.5% on trading income and 25% on non-trading income.
You can convert between LTD and DAC through special resolution and CRO re-registration within 2-4 weeks.
What's the main difference between a DAC and an LTD in Ireland?
The key difference is activity limitation. An LTD can engage in any lawful business activity without restriction, while a DAC must specify its permitted activities in the company constitution. This affects everything from operational flexibility to how quickly you can pivot your business model.
Can I run my business with just one director if I choose an LTD?
Yes, LTDs only require one director, which simplifies governance and allows for faster decision-making. In contrast, DACs must have at least two directors, which can slow down certain operational decisions but provides additional oversight.
Do DACs and LTDs pay different tax rates in Ireland?
No, both structures pay identical tax rates. Both pay 12.5% corporation tax on trading income and 25% on non-trading income, and the structure choice doesn't affect your VAT or PAYE obligations either.
How much does it cost to set up a DAC versus an LTD?
Registration fees are identical - €50 for online CRO registration or €100 for postal registration. However, professional fees for constitutional drafting typically run slightly higher for DACs due to the complexity of drafting the objects clause that defines permitted activities.
Can I change my business activities freely with an LTD?
Yes, LTDs have full capacity to pursue any lawful business opportunity without constitutional amendments. This means you can pivot, expand into new markets, or launch new products without needing to change your company constitution or file additional paperwork.
When should I choose a DAC instead of an LTD?
Choose a DAC for joint ventures where you need clear activity definition, special purpose vehicles for structured finance, certain regulated financial services activities, or when lenders specifically require it. For most other businesses, the LTD structure provides better flexibility with less complexity.
Can I convert my LTD to a DAC later if needed?
Yes, you can convert between structures through re-registration procedures. You'll need to pass a special resolution, file Form B44 with the CRO, and amend your constitution to add an objects clause. The process typically takes 2-4 weeks once documentation is complete.
What do venture capital investors prefer - DAC or LTD?
Most VCs strongly prefer LTD structures for portfolio companies. The flexibility to pivot business models aligns with startup realities, and simpler governance structures allow for faster decision-making that investors value in growth-stage companies.
Do I need a company secretary for both DAC and LTD structures?
Yes, both structures must have a company secretary. For LTDs, the company secretary cannot be the same person as the sole director, so you'll need at least two people involved in the company even if you only have one director.
Will choosing a DAC affect how clients perceive my business?
The standard LTD structure raises no questions from clients, while a DAC structure may signal specific purpose or regulated status to informed observers. For most businesses, this distinction doesn't matter, but it's worth considering if you're in a regulated industry where the DAC structure might actually enhance credibility.
.webp)
