Starting Your Own Business – Business Models
What options are available when you set up in business?
Three broad categories of business vehicles are available including:
• Sole Trader
• Partnership
• Limited Liability Company
What is the difference between a sole trader, partnership and a limited liability company?
Sole Trader
A sole trader is a person acting in business on his/her own account and operating under his/her
own name. If a person wishes to carry on his/her business under a different name he/she is
required by law to register the business name under the Registration of Business Names Act,
1963.
Partnership
A Partnership exists where two or more people come together to operate a business.
Limited Liability Company
A company is owned by the people who hold the shares in the company. Therefore as a Limited
Liability Company is a separate legal entity its shareholders’ personal assets are not at risk. The
profits of the company may be divided out amongst the shareholders in accordance with the
number and type of shares they hold. Shareholders in a Limited Liability Company are only
liable to lose the share capital they subscribe Since 1995 we can incorporate a single member
company. Prior to this it was necessary to have at least two shareholders and directors to
incorporate a company.
Private Limited Company is the most popular form of business organisation due mainly to the
fact that a company can, in its own right, own property and owe debts entirely separately from its
shareholders.
What are the pros and cons of each model?
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Sole Trader
Pros
• Sole control of business decisions and sole recipient of profits.
• Sole management of business.
• Certain types of business are required by law to operate as a sole trader.
• No legal formalities or reporting requirements.
• Inexpensive to set up and not necessary to have an accountant for tax returns.
Cons
• Personally liable for all business debts – unlimited liability.
• The continuation of the business is contingent on the continued existence of the sole trader.
• May be subject to a higher rate of tax than a limited company.
• Disposal of assets will generally involve time and expense.
• Use of the family home as security for a loan may prove difficult in light of the provisions of
Family Home Protection Act 1976.
Partnership
Pros
• May be created without the need for any legal formalities.
• No disclosure obligations
• Easier than a sole trader to acquire assets.
• Certain types of professional can only practice via a partnership.
Cons
• Personally liable for debts. Liability is “joint, severable and unlimited”. i.e. both partners are
jointly liable for business debts (joint liability). If one partner is not available or unable to share
the debt, then the other partner is fully liable for the business debts (severed liability).
• All partners are entitled to actively manage the business save where a written agreement to the
contrary exists. A clause can limit a partners authority and exclude them from managing the
business. Nonetheless, if a Partner concludes a contract for the business, s/he is in breach of
the agreement and may
• be liable to compensate the other partner(s).
• The retirement/death of a partner automatically dissolves the partnership.
• A partnership with over twenty members must incorporate as a company.
The Private Limited Company
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www.divorceinireland.com
[email protected]
Jervis House, Parnell Street, Clonmel, Co. Tipperary T: 052-6124344
Pros
• Limited Liability – shareholders liability is limited to the amount outstanding on their shares.
• “Perpetual succession” – the death of a shareholder or even all shareholders does not affect
the existence of the company.
• Shares in the company are easily transferable. Easier to sell all or part of a company than it is
a sole trader’s business or a partnership.
• Low corporation tax.
• Availability of a more “lenient” starting your own business, which is fine. Tax regime.
• Only directors can manage the company.
Cons
• Incorporation involves the payment of a fee (around €350) and a degree of legal formality.
• Companies are under disclosure requirements.
• Have to deliver audited accounts and, as such, companies are more expensive to administer
than a sole trader or possibly even a partnership. A company may, however, be entitled to avail
of an audit exemption if it satisfies certain criteria, which are outlined below.
• Can be more difficult to raise finance from banks initially due to limited liability, whereas sole
traders or partnerships are personally liable for all debts.
For More Information
Contact John M. Lynch or Gillian O’Mahony
[email protected]
[email protected]
052-6124344 or Freephone 1800 750 850.
www.lynchsolicitors.ie
www.divorceinireland.com
[email protected]
Jervis House, Parnell Street, Clonmel, Co. Tipperary T: 052-6124344