Choosing the right business vehicle

Broadly speaking, there are three types of business vehicles in Ireland:

• Companies
  
• Partnerships
  
• Sole traders
  

For a multitude of tax and legal reasons, the most appropriate business vehicle for start-ups will most likely be the limited liability company. A company is a separate legal entity and, therefore, is separate and distinct from those who own it (shareholders) and those that manage it (directors). Only the company can be sued for failure to meet its obligations and only the company can sue to enforce its rights. Companies facilitate greater opportunities to generate funding through the sale of shares than sole traders and partnerships.

Company types

As there are a number of company types, it is important to choose the correct type.

Limited companies

Companies are owned by their shareholders. In a limited company, the liability of the shareholder should the company fail is limited to the amount agreed to be paid for the issue of a share or the nominal value of a share, whichever is greater or (in the case of a company limited by guarantee) is limited to the amount guaranteed by the shareholder.

There are several types of limited company:

Private companies limited by shares (“LTDs”)

LTDs are the most common company type and well suited for start-ups. If the LTD is wound up the members’ or shareholders’ financial liability is limited to the amount, if any, unpaid on the shares they hold. Unlike public limited companies, LTDs cannot offer shares or debentures to the public. LTDs must have at least one director and a secretary. A LTD is free to pursue any business activity in its interests.

Designated activity companies (“DACs”)

DACs are similar to LTDs with the exception that a DAC’s activities are limited to those listed in the “objects” clause in the DAC’s memorandum of association. Restricting the company’s activities to a certain field or fields makes DACs ideally suited to joint ventures, special purpose vehicles and, in some situations, start-ups. DACs must have at least two directors.

Companies limited by guarantee not having a share capital (“CLGs”)

A shareholder’s liability in the event a CLG fails or is wound up is limited to the amount he has undertaken to contribute to the assets of the company not exceeding the amount specified in the memorandum. As CLGs do not have a share capital, their members are not required to buy any shares in the company. CLGs are best suited to charitable and professional bodies who wish to secure the benefits of separate legal personality and of limited liability but do not require funds from the shareholders. Their activities are limited to their objects clause and they must have at least two directors.

Companies limited by guarantee having a share capital (“DACs Limited by Guarantee”)

DACs Limited by Guarantee are private companies whereby the shareholders are liable in the event of winding up for firstly the amount they have undertaken to contribute to the assets of the company (being not less than €1) and secondly the amount, if any, that is unpaid on the shares they hold. Their activities are limited to their objects clause and they must have at least two directors.

Public limited companies (“PLCs”)

PLCs have shares which are offered to the public. Similarly to DACs, a PLC’s activities are limited to what is contained in its objects clause. PLCs must have at least two directors and the nominal value of the company's allotted share capital must not be less than €25,000 (of which at least 25% must be fully paid up before the company commences business or exercises any borrowing powers).

Unlimited Companies

Unlimited companies may be public or private. They are similar to limited companies except that the shareholders’ liability is unlimited in the event of the company failing. Unlimited companies are unsuitable for start-ups.

Forming a new company

The formation and registration of all companies in Ireland is done through the Companies Registration Office (the “CRO”). To form a company, a Form A1 and a Constitution together with the registration fee must be sent to the CRO.

Form A1

The Form A1 contains details of the company name, its registered office, details of the secretary and directors, their consent to acting as such, the subscribers (shareholders/members) and details of their shares. It incorporates a declaration that the requirements of the Companies Act 2014 have been complied with and a description of the principal area of activity the company will engage in. The proposed company name must not be similar to one already registered. Company names currently in use can be searched here. The Form A1 is available here.

Constitution

Essentially the company’s rule book, the Constitution regulates both the company’s internal governance and its external interactions. LTDs have a one document constitution and DACs have a two part constitution. The Ronan Daly Jermyn Template constitution for LTDs is available here. For a description of other key legal documents and agreements which are used by companies please click here.

Registration Fee

The CRO fee for registering a new company as at January 2017 is €100 for a paper application or €50 for an online application.