Bizstartup.ie - NewsDifferent options for forming a business

You could:

• Set up, run and manage a brand new business
• Take over an existing business. In this option, you have the benefit of taking over a going concern, but you get to decide how to run the business going forward
• Take up a franchise. The master franchiser will have developed a blueprint for the management and running of the business. When you enter a franchise agreement, you benefit from the strength of the brand and the franchiser’s experience to date with the business.

What structure would suit my business best?

The type of business structure you opt for will have several implications – the law governing the operation of your business, the liability of you and your business partnerships, how you are taxed and the business records you have to keep. Sole trader, partnership and company are the most common business structures.

What is a sole trader?

A sole trader is a person operating a business on his/her own. If you are setting up a small business, which you want to keep small and to own and totally control yourself, this type of business format might suit you.

• A sole trader format is simple to set up – there is no formal registration of your business needed before you can start trading
• It is possible to alter the business format to, say, a limited company at a later stage
• You do not need to file the financial accounts for your business
• As a sole trader, you absorb all the profits … and all the debt and risks of the business
• When you retire or die, the business comes to an end.

What are the first things I need to do to set up as a sole trader?

Business name – You will need to decide on a business name and to have it registered with the Registrar of Business Names, if you are operating under any name but your own name. The Companies Registration Office explains the procedures you need to follow to register your business name. Basically, you need to complete form RBN1 (which you can request from the Companies Registration Office or download it), sign it and send it with a cheque or draft for €20 for an online registration and €40 for a paper registration to the Registrar. Once the name is registered, the Registrar will issue you with a Certificate of Registration.

Website – If you plan to set up a website for your business, now would be a good time to register your domain name (even if you do not intend to use it immediately). Many commercial organisations register a .com address, whereas non-profit organisations register a name with the suffix .org. Most Irish businesses register a .ie address. This tells visitors to your site that you are registered in Ireland. The name of your site should be as close as possible to the name of your business. You can check the availability of a .ie website name at the IE Domain Registry.

Tax – You should advise the tax office when you start in business. You can do this by filling in a Revenue taxes registration form. Form TR1 is used for all businesses. This form is available from any tax office or can be downloaded from www.revenue.ie. It can be used to register for Income Tax, Employer’s PAYE/PRSI and Value Added Tax (VAT). When you fill in the form and return it to the tax office, you will receive confirmation of your registration, a registered number for PAYE purposes and detailed information regarding the operation of PAYE/PRSI. You will need to register with the Revenue Commissioners as an employer for PAYE/PRSI purposes, if you are employing somebody to work for you. VAT registration is obligatory where certain turnover thresholds are exceeded or are likely to be exceeded in any 12-month period. You may also be obliged to register for VAT if you receive taxable services from abroad or if you are a foreign trader doing business in the State. If you are involved in buying or selling goods within the EU, you will need more detailed information and should refer to the comprehensive VAT Guide, which is available from any tax office or can be downloaded from Revenue. Sole traders do not pay corporation tax, but will need to file a Return of Income with the Revenue Commissioners every year, under the self-assessment system. The return filing date is the 31 October following the end of the tax year.

Financial reporting requirements – You should prepare a profit & loss account every year. This will show your net profit for the year, ie your turnover minus all allowable business expenses. You do not need to file these accounts with the Companies Registration Office, but it will be useful if you are looking for grant aid or bank finance because it will show how your business is performing. Also, you will have to file a Return of Income with the Revenue Commissioners under the self-assessment system every year. The return filing date is the 31 October following the end of the tax year.

Professional advice – It is recommended that you get professional advice from an accountant and a legal adviser. This should ensure that all financial and legal obligations are fully met.

What is a partnership?

A partnership is where two to 20 people form a business together. Often accounting or solicitors practices are operated in this format. All partners can be involved in running the business, but sometimes a partner is ’sleeping’ – he/she has invested money in the business, but is not involved in running it.

• If you plan to trade using anything other than the partners’ names, you will need to register your trading name with the Registrar of Business Names
• All the partners share the profits … and all the debt and risks of the business
• A limited partnership can be set up where one or more partners limit their liability to the amount of money they invest in the business
• Partnerships (including limited partnerships) are obliged to prepare accounts and submit them to the Companies Registration Office
• Partner’s experience and expertise may complement each other. On the other hand, some partnerships could turn out to be incompatible. For this reason, a Partnership Agreement should be drawn up to decide how difficulties should be managed.

What are the first things I need to do to set up a partnership?

Partnership agreement – Set up a partnership agreement where all partners agree the shareholding, the operation of the partnership, the roles and responsibilities of each of the partners, whether any of the partners have limited liability, what to do if difficulties arise and a break-up clause.

Business name – Decide on a business name. You will need to register it with the Registrar of Business Names if you are operating the partnership under any names but the partners’ own names. The Companies Registration Office website, explains the procedures you need to follow to register your business name. Basically, you need to complete form RBN1A (which you can request from the Companies Registration Office or download it) and send it, together with the €20 for an online registration and €40 for a paper registration, to the Registrar. Once the name is registered, the Registrar will issue you with a Certificate of Registration – which is evidence that your business name has been registered.

Website – If you plan to set up a website for your business, now would be a good time to register your domain name (even if you do not intend to use it immediately). Many commercial organisations register a .com address, whereas non-profit organisations register a name with the suffix .org. Most Irish businesses register a .ie address. This tells visitors to your site that you are registered in Ireland. The name of your site should be as close as possible to the name of your business. You can check the availability of a .ie website name at the IE Domain Registry.

Tax– You should advise the tax office when you start in business. You can do this by filling in a Revenue taxes registration form. Use Registration Form TR1, available from any tax office or from www.revenue.ie. It can be used to register for Income Tax, Employer’s PAYE/PRSI and Value Added Tax (VAT). When you fill in the form and return it to the tax office, you will receive confirmation of your registration, a registered number for PAYE purposes and detailed information regarding the operation of PAYE/PRSI. You will need to register with the Revenue Commissioners as an employer for PAYE/PRSI purposes, if you are employing somebody to work for you. VAT registration is obligatory where certain turnover thresholds are exceeded or are likely to be exceeded in any twelve-month period. You may also be obliged to register for VAT if you receive taxable services from abroad or if you are a foreign trader doing business in the State. If you are involved in buying or selling goods within the EU you will need more detailed information and should refer to the comprehensive VAT Guide, which is available from any tax office or can be downloaded from Revenue.ie. Partners do not pay corporation tax. Each partner is taxed individually on his/her share of the partnership income and is required to file a Return of Income with the Revenue Commissioners under the self-assessment system every year. The return filing date is the 31 October following the end of the tax year.

Financial reporting requirements – Certain partnerships are required to prepare annual accounts such as a profit & loss account and a balance sheet. Check directly with your accountant and/or the Companies Registration Office to confirm whether your partnership falls within this category.

Professional advice – It is recommended that you get professional advice from an accountant and a legal advisor. This should ensure that all financial and legal obligations are fully met.

 What is a company?

• A company is a separate legal entity owned by shareholders. It is totally separate from the people who own and run the business. It is an individual in its own right and can enter contracts
• Ownership is transferable by share ownership
• In some instances, directors can be requested to give personal guarantees for loans to limited companies
• Companies can be limited or unlimited. In a limited company, liability is limited to the company, so shareholders can only lose whatever share capital they subscribe to the business
• There are two types of limited company – private or public
• A private limited company can have up to 50 members who can trade their shares privately. A public limited company has more than seven members and shares are traded on the stock markets
• In some instances, directors can be requested to give personal guarantees for loans to limited companies.

What are the first things I need to do to set up a company?

Shareholders – Shareholders own the company. They can also be directors. You will need to decide who the sholders will be.

Directors – Decide who the directors of the company will be. Directors are appointed to run and manage the day-to-day affairs of the company. Every company must have at least two directors and a company secretary. One of the directors can also act as company secretary. A director does not have to be a shareholder.

Business name – Decide on a name for your company. The Companies Registration Office website www.cro.ie, explains the rules, regulations and restrictions for a company name. To register, you need to send the Memorandum and Articles of Association for the business, together with Form A1 (which you can download ) and a fee of €100 for paper registration, €50 for online registration to the Companies Registration Office. Once the name is registered, you will receive a Certificate of Incorporation and no one else can use that name. However, if you want to trade under a name other than the company name, you will need to complete and forward form RBN1B (which you can download), signed by a director or the company secretary, together with a fee of €30 to the Registrar of Business Names. Once the name is registered, the Registrar will issue you with a Certificate of Registration.

Website – If you plan to set up a website for your business now would be a good time to register your domain name (even if you do not intend to use it immediately). Many commercial organisations register a .com address, whereas non-profit organisations register a name with the suffix .org. Most Irish businesses register a .ie address. This tells visitors to your site that you are registered in Ireland. The name of your site should be as close as possible to the name of your business. You can check the availability of a .ie website name at the IE Domain Registry.

Complying with the law

You will need to research whether there are legal requirements you have to comply with, before you begin trading. Legal requirements relate to employees, the workplace, the environment and many other areas, for example:

• If you intend to manufacture food products you will have to comply with stringent food safety and hygiene practices. Check with the Food Safety Authority for information
• European and international standards must be met in producing certain products. Talk to the relevant trade association for specific information regarding the law. Also, visit the website of the National Standards Authority of Ireland (NSAI). NSAI aims to assist all sectors of industry to understand and meet the technical, quality and safety requirements of European and international standards in the domestic and overseas markets
• When employing people, you will need to be familiar with the law relating to:

- Contract of Employment

- Safety, Health and Terms of Employment Welfare at Work

- Wages

- Redundancy Payments

- Working Time

- Dismissal

- Minimum Notice

- Industrial Relations

- Equality

- Parental Leave

Information relating to employment legislation is available from the websites of the Department of Enterprise, Trade and Employment and the Labour Relations Commission. Also, each Government department has information booklets, available in hard copy or on their website, on the areas under their control.

This article appears courtesy of AIB

This article © copyright Allied Irish Banks, p.l.c. 2010. The information does not constitute tax, legal, investment or any other advice by AIB. No representations or warranties are made as to the reliability, accuracy or completeness of the information.