IN a series of informative pieces exclusively commissioned by the Limerick Post business pages, the Corporate Compliance Unit of the OCDE (Office of the Director of Corporate Enforcement) will trawl through the minefield of company legislation and the duties of directors under company law. This week, we look at setting up a company.
“When you decide to set up a business you have many choices to make, what product or service to offer, what market to sell in, how much to invest, but one of the most basic is whether to set up a company or not.
“Put simply, the choice is between trading as an individual (a “sole trader”), and taking all of the risks personally, or setting up a company through which the trade will take place. A company has a separate legal personality to its owners, who are (for the most part) insulated from the company by what is commonly termed the “veil of incorporation.” In contrast to a sole trader, where an individual would be faced with trying to pay off any debts out of their personal resources, with a company their liability is limited to the cost of their shares”.
All things considered, it sounds like an easy choice then, but not necessarily.
Kevin Prendergast continues: “Setting up and running a company has costs. You will have to pay administrative fees every year to the Companies Registration Office (CRO), you may have to hire an accountant to help prepare accounts, you may even have to get your accounts audited.
“Also you will have to file annual accounts each year with the CRO, as well as details of the names and addresses of the directors of the company. Everything filed in the CRO is accessible by the public, through the CRO website www.cro.ie.
“You will also have to keep and maintain proper books of account, which correctly record and explain all the company’s transactions and are kept up to date. In addition you will have to keep a number of registers, including a register of directors, company secretaries, and members (shareholders).
“A company needs to have at least one Annual General Meeting (AGM) for its members every year. However if a company only has one member it can decide not to have such a meeting. All it needs to do is notify the Companies Registration Office of its decision.
“Once set up, a company is a permanent responsibility. You cannot decide to cease trading and walk away if you have set up a company. Liquidating a company is usually quite expensive. In contrast a sole trader can decide today to stop trading, and once they pay off all their debts then they have no further legal obligations.
“Finally, in practice limited liability, especially for new companies, is not necessarily all it is cracked up to be. For example, normally in order to secure finance from a bank to get the business going, you will be required to give personal guarantees, so your own assets would in that case still be exposed notwithstanding the fact that the business is trading through a limited liability company.
“So this in an important decision, and not to be taken lightly. But as a basic guide, if you are just testing the waters of a business, and are unsure whether you wish to commit fully or not then it would probably be best to start up as a sole trader, and then at some future point when you are more confident about the business then you can consider incorporating”. More information on company law is available at www.odce.ie.
