I want to start a new business and I would like some advice on the various legal structures my business may take. I want to protect my personal assets as much as possible from creditors in the event of my business being unsuccessful.
Your new business may take the form of a sole trader, a partnership or a limited company.
1. Sole Trader: If you establish your business on your own you may set up as a sole trader. You must register as a self-employed person with the Revenue Commissioners and pay your tax through the Self-Assessment system. If you wish to use a business name you must register your business name with the Companies Registration Office. However, this type of legal structure offers little personal protection as you have unlimited liability for all the debts of the business in the event of your business failing i.e. your personal assets may be
used to pay your creditors.
2. Partnership: This is where two or more people run a business in partnership with each other. A partnership agreement should be drawn up so that each partner knows what is expected of them in terms of capital contribution and profit sharing. The partners are jointly responsible for running the business.
Further, if it fails all partners are jointly and severally liable for the debts of the business i.e. if one partner runs up any debts, the other partners are all liable for those debts.
3. Private Limited Company: Once established, a limited company is a separate legal entity from its owners meaning the owners (the shareholders) of a limited company have limited liability from all the debts of the company. If the company gets into debt, the creditors generally only have a claim against the assets of the
company. However, banks usually ask for personal guarantees before issuing any loans so as to protect themselves from the limited liability rule. The company must be registered with the Companies Registration Office (CRO) and the company reports and accounts must be returned to the CRO each year. Company
profits are liable for corporation tax currently standing at 12.5%. You should consult with your solicitor and accountant when considering the structure which best suits you. Best of luck with your new business venture.