Company types. Which one should I choose for my business?
When you are planning your new business, do you give any thought as to what type of company it is going to be, legally and financially? This question might not even be on your list of priorities as you grapple with issues such as finding suppliers, creating a supply chain, funding and brand building but whether you are a start-up or a company that is expanding, you need to put it on the top of the list. The kind of company you own can have legal and financial implications and it can make life difficult if you discover, months or years into trading, that you went for the wrong type.
Main company types in Ireland:
- Private Company Limited by Shares (LTD)
- Designated Activity Company (DAC)
- Company Limited by Guarantee (CLG)
- Branch Company
- Public Limited Company (PLC)
- Limited Partnership Company (LP)
- Sole Trader
The following will give you a brief explanation of how each type of company differs.
Private Limited Company (LTD)
A private company is made up of a minimum of one shareholder and a maximum of 14. In terms of liability, only the company can be sued and shareholders are only liable as far as their investment in the company. Annual returns must be filed every year, even if the company is not trading.
Designated Activity Company (DAC)
A designated activity company has share capital and limited liability, although it could also be a private company limited by guarantee. Unless it has been granted an exemption the name of the company must end in ‘Designated Activity Company’ or ‘Cuideachta Ghníomhaíochta Ainmnithe’. A designated activity company has a constitution document, including a memorandum and articles of association.
Company Limited by Guarantee (CLG)
CLGs come in two flavours, one that has no share capital and one that does. If there is no share capital, then the company is classed as public with a minimum of seven members who do not need to be shareholders. This type of structure suits professional bodies and charities. If the company does have share capital then it can have up to 99 people who have liability towards unpaid share capital and the amount of money they have guaranteed should the company be would up. This type tends to suit co-operatives.
Branch companies would normally be set up by international organisations looking to gain access to the EU market through Ireland. It gives them the advantage of trading under their brand and not trying to break into the market with an unrecognised name.
Public Limited Company (PLC)
If a business is looking to raise funds by listing itself on the stock exchange, it forms a PLC. It must have a minimum of seven shareholders and have an allotted share capital in excess of €38,092.14 of which 25% must be fully paid up. Shares can be traded easily on the stock exchange and can be bought by anyone, although owners of a business will normally hold a majority share so that the business remains under their control.
Limited Partnership Company (LP)
An LP is based on the Limited Partnership Act, one of Ireland’s oldest legal frameworks. The company is organised around one general partner and up to 20 limited partners. The general partner acts as a manager of the company and as such, must be resident in the Republic of Ireland, while limited partners can live anywhere.
The most common type of company, especially for start-ups, is the sole trader. Most companies start this way – even if they eventually outgrow it – as it is a cheap and easy process that means you simply register your business name with the Companies Registration Office. You must be a resident in this country and you will be responsible for all liabilities. However, as a sole trader, your company name has no copyright protection as that is only extended to limited companies.
Depending on your business, choosing the right type of company can be difficult. It is best to take professional advice to ensure you finding your perfect type.