Frequently Asked Questions
When you start a business you can do so either as a sole trader, partnership or limited company. The type of structure you choose depends on the kind of business you are carrying on, with whom you will be doing business and your attitude to risk. We’ll take a look at the structure of each and give you our views on the advantages and disadvantages of each type of structure.
You are operating your business in a personal capacity. You might wish to register a business or a trade name e.g. Joe Blogs Trading as Blogs Heating and Plumbing Services. The assets and liabilities of the business are yours. The same obligations to register for tax apply as for a Limited Company.
- Simplicity- it’s very straight forward – you can start operating as a business by simply notifying the Revenue commissioners that you are starting up.
- Lower costs – no audit required for your annual accounts therefore your accountants fees should be less.
- No requirement to file accounts annually with the Companies Registration Office.
- Closing down the business may be easier than closing down a Limited company.
- Unlimited liability- if things go wrong the buck stops with you. You are liable for all or any of the debts of the business.
- Tax liabilities may be higher than those of a Limited company, and fewer opportunities to plan for tax savings.
- A sole-trader may lack credibility when dealing with customers.
- Your business name is not protected under company law.
This means a sole-trader has unlimited liability. The sole-trader can be sued personally for anything the business does. If the business fails the individual is liable for all the debts of the business.
A limited company is a legal person. It is not the directors or the shareholders. The shareholders own the company. The Directors run the company. But the company itself is a legal person that can trade, sue, or be sued. It is “born” when it is incorporated. It “dies” when it is dissolved.
- Limited liability- if the business goes pear shaped, for whatever reason, the liabilities of the company remain with the company- unless the directors/ shareholders have given personal guarantees to creditors, they are not liable for the debts of the business.
- Tax advantages- a new company may be exempt from profits tax (Corporation tax) for the first three years- after that the company pays tax at 12.5%. This is a very significant advantage.
- A limited company may look more credible to customers etc. than a sole-trader
- Your company name is protected – nobody else can register the same name with the Registrar of Companies.
- As a limited company the business has to file a short version of its accounts with the Companies Registration Office- and these are available to the public.
- A company may be required to have audited accounts- and this is expensive (FAQ Do my accounts have to be audited?)
3. Closing down the business can be expensive- this can be done through liquidation or dissolution.
So which should I opt for?
This depends on the expected size of the business, and the risks involved. Generally speaking, the advantages of setting up a limited company outweigh the disadvantages. Give us a call and we advise you impartially.
The taxes that are likely to affect you if you set up in business are
1. VAT- value added tax
You must register for vat if the turnover of the business is €37,000 per annum for services or €75,000 for sale of goods.
2. Tax on profits
This is called Income tax if you are self-employed and Corporation tax if you are trading under a company. If you are trading, you are obliged to register for one or other of these taxes.
2. PAYE / PRSI
If you have employees in your business you must register and operate PAYE for them. If you operate through a limited company and you are being paid a salary then you must register and operate PAYE on this salary.
There are other taxes which may need to register and account for if you are starting up in business. For example, if you are setting up in the construction business you may need to register for Relevant Contractors Tax, if you are in retail you may have to deal with the plastic bag levy. You should give us a call if you need further information.
Some experts are of the view that choosing a company name can make your company the talk of the town and that wrong one can doom it to obscurity and failure. In our experience product and service will win out at the end of the day. However it can be important and ideally, your name should convey the expertise, value and uniqueness of the product or service you have developed. It will almost certainly be used in your marketing and you should consider your marketing strategy, logo, domain name registration when choosing your name.
You should also note that if you have a company name e.g. ABC Limited you can always register a Trade Name which is different than this. e.g. John’s Chip Shop. You can also change the company name.
There are restrictions on the name you can register.
In a nutshell…….. It must not be too similar to another company name It must not be too generic …e.g. Heating & Plumbing Supplies Limited will not be accepted. It would have to be a little more unique e.g. Acme Heating & Plumbing Supplies Limited. It must not be offensive or give the impression of being state sponsored.
The following are the Company Registrations Office views regarding choice of Company name.
The CRO does not check proposed company names against names on the business names register and the trade mark register. Applicants are, therefore, advised to check these registers to ensure that the proposed company name does not conflict with a business name or trade mark since any person claiming to have a right to that name could take a civil passing off action to protect his/her interest.
The CRO may have to refuse a name, if: • it is identical or similar to a name already appearing on the register of companies; • it is offensive; • it would suggest state sponsorship.
Applicants are, therefore, advised not to incur expenses relating to the proposed name (e.g. preparing signs, headed note-paper, stationery, etc.) in advance of receipt of the certificate of incorporation which will be confirmation that the company is registered.
Please note also that Section 23(2) of the Companies Act states that if your chosen name is too similar to the name of another company, and is accepted for registration by the CRO, through inadvertence or otherwise, an objection on grounds of similarity could be made in writing to the Registrar of Companies within six months following the incorporation of your company and you could be directed by the Registrar to change the company name. In considering whether names are too alike, the Registrar will take account of all relevant factors suggesting similarity and leading to confusion between the names of the two companies.
If the Registrar, pursuant to section 23 Companies Act 1963, directs a company to change its name, such change must take place within six weeks of the date of the Registrar’s direction or such longer period as she may allow. A company that fails to comply with the direction will be eligible for prosecution.
The following guidelines are to assist in assessing the acceptability or otherwise of company names:
Names containing certain words cannot be used unless approved by relevant bodies. For example, the words “bank”, “banker”, “banking”, “banc”, may only be used with the permission of the Central Bank of Ireland. This also applies to names such as “hollybank”, “sweetbank”, “canal bank”, “bancorp”, etc. and the surname “Banks” not withstanding the fact that the company may not intend to carry on banking business.
Words such as “society”, “co-op” or “co-operative” cannot be used unless prior permission has been sought from and granted by the Registrar of Friendly Societies.
The words “University” “Regional Technical College” and “Institute of Technology” cannot be used unless permission has been sought from and granted by the Department of Education.
If a name includes words which imply specific functions e.g. “holding company”, “group” etc., further information may be required by the CRO to support the application.
In the case of the word “Charity”, further information may be sought by the CRO to support the application.
The use of the word “standard” is prohibited.
Please note that there may be a requirement for some management companies to include Owners’ Management Company in the company name. S.14(3) of the Multi-Unit Developments Act 2011 provides ” The words “owners’ management company” shall be included in the name of every owner’s management company to which this section applies, which words may be abbreviated to “OMC”. S14(4) “This section applies to owners’ management companies of multi unit developments in respect of which no contract for the sale of a residential unit has been entered into prior to the enactment of this Act”. Section 14 was commenced on 24th January 2011.
In a nut-shell, you have to have a registered office.
You need to have one director and a separate secretary. You need a minimum of one shareholder who can be the director. The company also needs a registered office.
Companies / Directors / Secretaries
The following sections set out the primary responsibilities of companies, company directors and/or secretaries under the Companies Acts, under secondary legislation and related case law. Further information on the roles of companies, company directors and/or secretaries can be found in the ODCE Information Books.
Companies’ principal duties are as follows:
- To maintain proper books of account;
- To prepare annual accounts;
- To have an annual audit performed (subject to exceptions);
- To maintain certain registers and documents;
- To file certain documents with the Registrar of Companies;
- To hold general meetings of the company.
Company Directors’ Responsibilities
Company directors’ responsibilities are wide and diverse. Their duties arise primarily from two sources: statute (Acts of the Oireachtas and other legislation e.g. EU Regulations) and common law. Directors’ common law duties can be summarised into three principles:
- Directors must exercise their powers in good faith and in the interests of the company as a whole.
- Directors are not allowed to make an undisclosed profit from their position as directors and must account for any profit which they secretly derive from their position as a director.
- Directors are obliged to carry out their functions with due care, skill and diligence.
- Directors’ statutory duties are as follows:
- Duties as a company officer under the Companies Acts
- Duty to maintain proper books of account
- Duty to prepare annual accounts
- Duty to have an annual audit performed
- Duty to maintain certain registers and other documents
- Duty to file certain documents with the registrar of companies
- Duty of disclosure of certain personal information
- Duty to convene general meetings of the company
- Duties regarding transactions with the company
- Duties of directors of companies in liquidation and directors of insolvent companies
A company secretary’s main functions are to oversee the company’s day to day administration and to ensure specifically that the company complies with the law and observes its own regulations. Their duties may be summarised as follows:
- Statutory Duties under the Companies Acts (usually in conjunction with a director)
- Duty of disclosure of certain personal information
- Duty to exercise due care, skill and diligence
- Administrative duties
Authorised share capital is the limit set in the Company Constitution up to which the company is authorised to issue shares. In other words, the company can issue further shares if so required to do so. This limit is usually set at €1,000,000, which consists of 1,000,000 ordinary shares of €1.00 each.
Why would a company issue additional shares? Well, if for example it was taking in investors who are putting money into the company in exchange for a shareholding in the company, the company would then have to issue shares.
Issued Share Capital refers to the actual shares in the company. These are issued on incorporation of the company. It is usual to issue 100 ordinary shares of €1.00 each. The shares are normally paid for by cash paid into the company. It is common for shareholders to off-set the company formation fee against the cost of the shares.
You can have different classes of shares with different rights, including voting rights, attaching to them.
Shareholders and ownership of the company. A company can be owned entirely by one shareholder. Alternatively there may be two or more shareholders. The number of shareholders is restricted in a private limited company. In general the more shares you have, the more control you have.
Partnership Agreement – if you are in a partnership it’s very advisable to have one. If you’re not comfortable completing this give your solicitor a call, or give us a bell and we’ll be happy to discuss the matter.