SETTING up a new business is both an exciting and daunting experience. If you’ve decided to take the plunge it is important that you give consideration to and choose the most suitable legal structure for your business.
If you are ‘going it’ alone, then you have the option of being a sole trader. The majority of businesses starting out operate as sole traders and it is the easiest format to begin with.
Once you decide on a business name you must register it with the Company Registration Office (CRO). The relevant forms are available on www.cro.ie. Otherwise there are no other legal obligations in getting started.
The main disadvantage to operating as a sole trader is that you are personally responsible and liable to all your creditors and customers, to the extent that
they may have recourse to your personal property if things go wrong. This has the potential to cause sleepless nights.
If you set up business with a partner, it is crucial that you enter into a partnership agreement at the beginning. This agreement will govern your business relationship, to include the shares that you have in the business, renumeration, division of profits, ownership of property and what should happen if one wants to leave the partnership.
Partners are liable for all the debts and obligations of the partnership without limitation, and so each one is responsible for the related business transactions of the other(s).
It is therefore important that you have an open and transparent relationship with your business partner(s) and that you are each aware of and in agreement with all the commitments, financial or otherwise being made on behalf of the partnership.
Again, the partnership’s business name must be registered with the CRO.
By incorporating your business into a limited company, which is done through the CRO, you are creating a distinct legal entity, separate from the people who run it. A company must have directors and shareholders, and one of the main advantages of this structure is if the company does not pay its creditors, the company is sued and not those who run it.
There is certainly a cost in setting up and maintaining a limited company, and it is important that you familiarise yourself with company law requirements, to include the strict rules governing annual filing of accounts with the CRO, before taking the leap.
As with a lot of things, getting into it may be easy, but getting out may be difficult!
One can at any stage convert their business from a sole trader or partnership to a company.
It certainly may be advantageous to do so once your business turnover has increased substantially, and it is evident that it has stabilised and is growing. Your Accountant will be best placed to advise you of when the time is right.
This article does not constitute legal advice and where an opinion is expressed, it is the personal opinion of the author only and not of the firm or the paper. For further information, contact Cashin & Associates Solicitors, 3 Francis Street, Ennis, Co. Clare. Tel: 065 6840060. Email: firstname.lastname@example.org