Incorporating means that you are creating an entirely new and separate legal entity to run your business. If you’ve never done this before, it can be difficult to realise the important distinction that exists between one (or a few) individuals running a business and a company running a business.
All company founders owe it to themselves, their company, and their future employees and shareholders to understand the basic structure of a company. The company itself is a separate “being,” greater than the sum of its parts. Forming a company brings both rights and responsibilities.
When should you incorporate?
- You want to raise funds from unrelated third parties (i.e. from parties who won’t expect you to personally pay back the money). Why?
- You want to issue shares to people other than those on the founding team. Why?
- You plan on signing a customer, including a beta customer. Why?
- You plan on hiring your first employee or contractor. Why?
- You plan on filing formal intellectual property protection such as a trademark or patent. Why?
Incorporating a limited liability company means that, except in certain circumstances, a shareholder’s liability for actions by the company will be limited to the amount they have paid up on their shares.
The company itself can enter into contracts. Those contracts are a company obligation, not an obligation of the individual shareholders or founders.
How do you incorporate?
Incorporation itself is a relatively straightforward process; you can incorporate your own company within a week.
Under the new Companies Act 2014, a LTD company can be formed with only one director (formerly, two directors were required). If you form a company with one director, you will need a separate company secretary — this can be provided by any company formations service. (Note: This is not the case in the UK anymore — companies can now be formed with a sole director and no secretary.)
Because directors owe duties to the company, it is preferable that only people who are involved with the company are appointed as directors. It is good to see the change to allow companies to be formed with only one director; unsuspecting and uninvolved spouses/cousins/aunts no longer have to be called on to fill a director’s seat just to make up the numbers.
There are many company formation services (like CompanyFormations.ie) that offer packages to incorporate a LTD company. This is the quickest and easiest way to incorporate. You will usually only need their most basic package, plus the cost of ordering a company seal; all companies in Ireland are required to have a seal.
Ensure that your package includes delivery of corporate documents in editable electronic format (Microsoft Word or similar), in case you need to make minor changes later. If you are using someone else to make those changes, it will be far easier for them to work with an electronic copy. Keep all of your incorporation documents safe and scan copies into digital format to start your very first data room!
Minimum: register with Revenue for corporation tax – form TR2
Usual: use the same form TR2 to register for VAT and PAYE/PRSI
Most Revenue filings are now required to be submitted via the Revenue Online Service, so someone (either the company or an agent like a financial adviser) needs to be registered to file the appropriate returns.
Your company formation service can do all of the above, but it is probably better to use your financial adviser — they will likely be more involved in the day-to-day of the company after incorporation.
An incorporation package usually includes:
– The Company Constitution (formerly the Articles of Association)
– Board minutes appointing the first director(s) and secretary and either:
- Approval of a share transfer Share transfer if the Company was a pre-existing shelf company; this will transfer shares to the founders (Share Transfer forms will also be provided in this case) OR
- Board minutes will include the issue of new shares to the founders Forms B10 for director/secretary appointments for filing with the CRO Certificate of Incorporation
A note on Minute Books/Share Registers
Many company formations packages will include a formal Combined Company Register, which includes your board minutes, company filings, share register, blank share certificates, etc. While this can be handy to have all in one place initially, there is no formal format required. The Company Books include all of the above, in whatever format they may be.
As the company grows, you are likely to have a separate share register in electronic format and to keep all your signed board minutes and shareholder minutes in a different place / format. So long as all the required documents are easily located, then all of those constituent pieces form your Company Books. However, it is important to have things like the share register in the required layout, showing allotments, transfers, divisions, etc. so if you are not familiar with the requirements, it is best to buy a package that includes the first set of Company Books.
Who can be Secretary?
Generally, no formal qualifications are required to become the secretary of a private company. However, the directors of all companies have a duty to ensure that the person appointed as secretary has the skill necessary to discharge their statutory, legal, and such other duties as may be delegated to the secretary by the directors (from the ODCE booklet on The Principal Duties and Powers of the Company Secretary (.pdf)). Note: the duty to ensure that the Secretary has the necessary skills is a new obligation on the Directors, imposed by the Companies Act 2014.
Who can be Director?
There is no equivalent requirement for a director to have the “skill necessary” to discharge their duties. However, the following are not permitted to be directors:
- a body corporate or an unincorporated body of persons
- a person who is under the age of 18 years
- an undischarged bankrupt
- the statutory auditor of the company
- a person disqualified from acting as a director by the Courts.
The broad scope of statutory Directors Duties imposes a greater burden on directors than secretaries, and it would be difficult to discharge those duties if you did not have the “skill necessary.” Directors do not need to be shareholders.