Starting a Company

Guide to company structures in Ireland

//Starting a Company
Starting a Company 2016-10-19T18:43:28+00:00

1. Why start a Company?

The fundamental principle regarding a company is that it is a separate legal entity, distinct from its’ shareholders and directors. It is therefore like a human being. It is born, it lives and it usually is wound up. Some companies can of course go on forever. Just like a person the company can own property, have bank accounts be sued etc. However if the company has no money then they will get no money.

2. Different types of Companies

The most common types of companies are as follows:
(a) A company limited by shares

In this scenario the shareholders maximum liability is the amount owed on his shares
(b) An unlimited company

Here there is no limited on the members liability should the company have arrears.
(c) A company limited by guarantee

In this case the member’s liability is limited to the amount he has undertaken to contribute if the company is wound up and owes money.

3. Incorporating a Company

In order to incorporate a company certain documents must be filed with the Companies Registry Office – the CRO. The principal documents are a Memorandum of Association, which sets out the objects of the company, the Articles of Association, which sets out how the company will be run internally, a statement of the nominal share capital and a declaration of compliance with the Companies Act, which is usually made by the solicitor. Usually private company have at least two shareholders and a public company must have at least seven shareholders on incorporation and at all times thereafter.


4. Membership in a company

When a share in a company is issued to a person they become a member in the company. A share is defined as ‘ the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second place, but also consisting of a series of mutual covenants entered into by all the shareholders between themselves.’ When you become a member of a company you get a share certificate which you hand over when you wish to transfer your shares. This will be notified to the secretary of the company who will notify the registry of shareholders. These shares are personal property and may be sold, bequeathed, mortgaged etc. by the shareholder.

5. Directors of a Company

The directors are the people who are responsible for running the company. In the case of a private company these will usually include or be the shareholders of the company. In the case of a public company the directors may also be shareholders but it is not as common as the directors will be remunerated for their duties. Also in a public company the directors will be appointed at a meeting of the shareholders. The powers of the directors of the company are laid out in the articles of association and the directors must act only within these powers. The directors have a duty towards the company to act in its best interests. They must not put themselves in a situation where their own interest and the interest of the company would be in conflict.

6. Meetings of the company

The directors of the company will hold the annual general meeting once a year. However under the Companies Acts the members of the company may convene a general meeting even if the directors do not wish to have one. If the members seek to have such a meeting they must state the object of the meeting in writing and deliver it to the companies registered address. This is known as an extraordinary general meeting.

7. Company Prospectus

A prospectus will be issued when a company wants the public to subscribe for shares; an example of such was the flotation of Eircom in Ireland. This will usually contain the advantages that the company estimates will accrue from an investment in the company. It will also set out the company’s directors, and what their benefit is, the amount of capital required, the company’s financial record and other salient information.

8. Allotment and Dividends

When an applicant requests to buy shares he is making an offer and it is up to the company to accept or decline. This power is vested in the board of directors. A dividend is the share of the company’s profit legally available to be divided among its’ members. Normally the shareholder has a right to a share in the profits of the company. However, dividends may never be paid out of the capital, as this must only be used to achieve the objects in the memorandum.

9. Debentures, Fixed and Floating Charges

All the above relate to the company borrowing money. A debenture is a document that is given under seal by the company to a creditor in return for money. It usually will give the creditor a charge over on the assets of the company. A fixed charge is a mortgage of ascertained definite property. It effectively means that the title to the property is vested in the lender and accordingly that the company cannot sell the property without paying off the money. A floating charge differs in that it does not attach to any particular asset but ‘floats’ over all the companies assets. All the above must be notified to the CRO within 21 days of their creation.

10. Winding up of a Company

A company can be wound up by a court or voluntarily by its’ members. A company may also be struck off the register for failing to make any annual returns. A court winding up will begin by the presentation of a petition to wind up the company by either the members or the creditors. A notice of such will be put in the paper to alert creditors so that they can attend the petition hearing. The court will appoint a liquidator who will sell the assets to discharge the debts of the company. He will pay off the creditors in the specific order that is laid out in the Company Acts. The members of the company may also wish to wind up the company voluntarily. The members of the company must make a declaration of solvency in order to do this.