A company is an entity that is engaged in business which is established, registered and maintained in accordance with local law.
There are several benefits to establishing a company and, in some circumstances, it may be a condition to accessing funding or tendering for project work.
There are a host of considerations which may be significant to the creation and start-up of your company and ten points are addressed briefly below.
- A company has a legal personality and existence which is separate and distinct from that of its incorporators (the persons who set it up), owners/members/shareholders and directors. This means that:
- the company has legal status and capacity to enter into contracts and to sue or be sued in its own name. The company’s assets and liabilities are separate to that of its owners/members/shareholders and should notbe co-mingled.
- it also has perpetual succession in that it continues to exist despite the death, legal incapacity etc. of its owners/members/shareholders or the transfer of its shares or change in its membership.
- A company is established by following the legal rules and procedures prescribed by law. This usually starts with a name search (to ensure that your proposed company name is available for use), followed by the filing of memorandum of association (which would provide, among other things, for the minimum/maximum number of directors as well as the stated capital of the company and may contain limitations on the activities the company may carry out), as well as articles of association and bye-laws, which provide for the internal management of the company.
- A company typically exists to carry on a commercial enterprise for profit, but may also be established for charitable purposes as a non-profit company. It is important to determine, right from the start, whether you intend to operate a company as a business enterprise or as a non-profit, as there may be different requirements for setting up and maintaining these companies. As a general rule, in addition to the initial registration or filing requirements to create the company, there are annual filings to be made with associated maintenance costs. Whilst these obligations are not usually onerous or expensive, it is important to know the deadlines for filings, as penalties may be incurred for late filing and/or you may run the risk of being struck off from the list of companies kept by the registrar of companies.
- Shareholders/members are owners of the company. In the context of “for profit” companies, they inject capital or assets into the company and are typically given a membership interest called a “share”. There can be different types and classes of shares as defined in the memorandum/articles of association. A shareholder generally has two rights: to appoint directors and to collect dividends on profits. If you wish to limit the way you and/or other shareholders may deal with the shares (including by sale/transfer) you should enter into a shareholders agreement. Shareholders should meet at least annually and a formal record of meetings should be produced.
- A company must have one or more directors and a corporate secretary. The directors are responsible for directing and controlling the company, and to the extent necessary, may hire employees to manage and operate the day to day business. Directors should meet regularly and decisions of the Board should be recorded and kept by the corporate secretary. Directors must take decisions in good faith in the best interests of the company.
- Be sure to familiarise yourself with the requirements for setting up and maintaining company accounts at your bank and maintain a good relationship with your bankers.
- Ensure that you engage an accountant to review the company’s books, even if it is a small company, as you may be required by law to file annual corporate tax returns and to pay taxes on any profits. You may be able to claim certain expenses as a deductible and reduce the company’s tax burden thereby increasing the profits available for distribution as a dividend. This is one notable advantage of incorporation as distinct from operating as a sole trader as in the latter case there is often no set off of these expenses (against your personal tax liability). You should also prepare business and accounting forecasts and consider whether you are likely to approach the VAT threshold for registration.
- Be aware of all regulations that may cover the type of business that you propose to engage in and that you obtain any required licences, consents or authorisations.
- Determine whether your business is eligible for any benefits, concessions, rebates as this can sometimes determine whether your business succeeds or fails.
- You may also wish to give early consideration to registering any trademarks, which may include, your company name. This ensures that you have additional legal redress should your name or logos be used by a third party without your permission.
Finally, whereas the foregoing may be a useful starting point, it is always prudent to seek relevant advice and professional assistance to ensure that you are well informed on all matters relevant to structuring and maintaining your company so as to optimise its prospects of success.
DISCLAIMER – This is a legal column to provide basic information on the law and court procedure. It is not to be used as a substitute for legal advice but to be used only as a starting point in understanding what you might need and what you might need to do.