This may seem like a strange question to ask, especially if you are a one-man-band (a sole trader) or your ‘business’ is just a sideline to your ‘proper job’. However, for those of you who are looking to start up a new business or who are considering expanding, deciding what type of company you want to own can have quite serious legal and financial implications.
In some ways the best advice to give you would be to talk to an accountant who specialises in startups and small businesses. After reading on, you might have a better understanding of why you need to give such careful consideration to the type of company you want to run.
Main company types in Ireland:
- Private Company Limited by Shares (LTD)
- Designated Activity Company (DAC)
- Company Limited by Guarantee (CLG)
- Branch Company
- Public Limited Company (PLC)
- Limited Partnership Company (LP)
- Sole Trader
The following will give you a brief explanation of how each type of company differs.
Private Limited Company (LTD)
A private company is limited to a maximum of 14 shareholders and a minimum of one (a Single Member Company). The business’ liabilities are separate from those who run an LTD, so only the company can be sued, and shareholders’ liability extends only as far as their investment in the company. An annual financial return must be filed every year, irrespective of whether the company has been trading or not.
Designated Activity Company (DAC)
A DAC has limited liability and has share capital, or alternatively it is a private company which is limited by guarantee. The name of the company must end in “Designated Activity Company” or “Cuideachta Ghníomhaíochta Ainmnithe” unless it is exempted. A DAC has a constitution document, including a memorandum and articles of association.
Company Limited by Guarantee (CLG)
There are two types of CLG, one which has no Share Capital and one which does. If there is no Share Capital, that company is classed as public company with a minimum of seven members who are not obliged to buy any shares in that company. You will often find that professional bodies and charities are CLGs with no Share Capital. If the CLG has Share Capital, then membership is restricted to a maximum 99 people, whose financial responsibility/liability extends to both unpaid share capital and also the sum of money they have guaranteed to contribute in the event that company is wound up. A co-operative is usually a CLG.
Branch Company
An Irish branch company would usually be set up by an international company looking to gain access to the European Union market and many companies worldwide have opened Irish branch offices. One of the biggest advantages of creating a branch company is you can trade in your already established name rather than try to break into the market as an apparent ‘newcomer’.
Public Limited Company (PLC)
A PLC is usually formed if a business wants to list itself on the stock exchange, often as a means of raising capital for expansion. A PLC must have at least seven shareholders and have an allotted share capital in excess of €38,092.14 and of which 25% must be fully paid up. The advantage of stock (shares) is that that can be traded easily and can be bought by anyone.
Owners of a business listed on the stock exchange will usually (but not always) hold a majority share in order to retain overall control.
Limited Partnership Company (LP)
While an LTD company is a separate legal entity to its owners, an LP isn’t. It is based on one of the oldest legal Irish frameworks, the Limited Partnership Act, and comprises one general partner and up to 20 limited partners. The general partner will have managerial rights over the company and must be a resident in the Republic of Ireland, while the limited partners can live anywhere.
Sole Trader
Certainly, where most startup companies are concerned, registering it as a Sole Trader is the most common beginning. It is not expensive and a relatively straightforward process that involves registering your business name with the Companies Registration Office. You must be resident in the republic of Ireland and as a Sole Trader, you will be responsible for all commercial liabilities of your company. It is worth noting that as far as the name of your company is concerned, it has no protection, so anyone can copy it. That form of protection is only offered to limited companies.
As you will now realise from having read the above, which again we remind you is only a synopsis of the most relevant aspects of each different form of company in Ireland, making the right choice of company is not an easy task and why you should seek professional advice before making the final decision.
