Given the many types of business structures on offer for example sole traders, partnerships. limited liability companies, companies limited by guarantee, co-operatives and group structures the experience FDC advisors will guide you to the most suitable option having considered the relevant taxation implications, legal requirements and costings of each.
The principal forms of business structure comprise:
The simplest form of business structure in Ireland is that of a sole trader. This is where an individual would trade on his/her own account as a self-employed person. The principal advantages are that an individual would remain in full control owning personally the assets of the business and any profits generated. There are also very few legal formalities involved. The significant disadvantage however is that an individual would be fully personally responsible for all liabilities of the business without any limit. This means that an individual could be sued by creditors to recover company debts from any personal assets including family home.
This is where two or more individuals enter into business for the purpose of achieving a profit. The principal advantages here will be the skills which the different partners can bring to the business and also sharing of the responsibilities and liabilities of the business. An individual should be very careful as to who is brought in as a partner. Each partner is individually responsible for all the debts of the partnership and an individual could be very greatly exposed by a reckless partner. Individual personal assets are also at risk for all partnership debts. It is strongly advisable that a form of Partnership Agreement is drawn up by a solicitor in consultation with FDC tax consultants to make clear the rights and obligations of each partner to minimise any subsequent dispute. In many cases disputes arise on the relative contribution of partners especially time input versus expertise input. So is very important to consider all matters at the outset and reflect in a Partnership Agreement what is to happen if one of the partners becomes ill, wishes to retire or dies. FDC consultants have vast experience in on all technical issues but also are available to act as mediators.
Private Limited Company
A company is perhaps the most useful form of business structure. A company is a separate legal entity to the shareholders who own it and who form the company by joining together in a Memorandum of Association which sets out the objectives of the company and its capital structure. The shareholders also sign up to Articles of Association prepared in accordance with the Companies Acts. The Articles form a contract between the shareholders. They specify how the company is to be governed and in particular details the division of responsibilities between the shareholders and the directors who are elected by the shareholders to manage the company from day one.
Every company must have at least two Directors and a Secretary. It is now possible for a company to have only one shareholder. For the company to remain a private company it must not have more than 50 shareholders and may not issue a general invitation to the public to subscribe for shares. The company must be registered with the Registrar of Companies and receive a Certificate of Incorporation. This is essential for the purpose of opening bank accounts and registering with the Taxation Authorities.
The principal advantage of operating a business in the form of a private limited liability company is that it would mean that an individual and anyone else who joins with an individual as a shareholder would enjoy the privilege of limited liability. This would mean that an individual’s obligation to meet the debts of the company would be restricted to the amount which an individual have agreed to pay for shares in the company.
There are however a number of exceptions to this, including:
As indicated above personal liability can also be imposed in certain circumstances. It is essential to take on board advice from legal and accounting professional consultants to ensure that the documentation relating to the company complies with the relevant legislation and also reflects an individual’s practical requirements. FDC consultants highly recommend shareholders to consider entering into a shareholder agreements to deal with matters outside the Articles of Association such as an agreement as to the amount of capital to be invested, how shares may be transferred in the event of illness, death or retirement, clarifying the rights and obligations of the various shareholders as regards the day to day operation of the company including the thorny issue of time input versus expertise input etc.