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| Companies Registration Office Dublin |
The vast majority of Irish companies are either Companies limited by shares or companies limited by guarantee. Kieron Nolan (FCA, AITI) outlines the differences between both type of companies below. Kieron can be contacted here.
COMPANIES LIMITED BY SHARES
It has been said that an
important element in the development of the industrial revolution was the
invention of the company limited by shares. Prior to that point if a person
invested in a business which failed, their assets could be seized to pay off
any deficiency. From that time on the liability of the investors was limited to
the amount they had invested in the shares of the company. This allowed
companies to raise capital on a large scale for the first time.
A company limited by shares is a
separate legal entity, governed by company law, and owned by its investors or
members in proportion to the shares they hold. The company is run by a board of
directors who are answerable to the members and can be removed by them in an
Annual General Meeting. In Ireland there must still be a minimum of two
directors. The shareholders receive dividends from the profits of the company,
and, especially if the company is a public one, may hope that the value of
their shares increases over time.
Each company has its own
governing document, called the Memorandum and Articles of Association, which
are usually based on a standard set with minor adjustments. This document must
set out the proposed activities of the company in the “objects clause”. Any
activity which the company carries out which is not stated in its objects
clause is “ultra vires” or outside its powers and therefore illegal, and hence
there are pages and pages of objects in the standard document (the current
companies bill is proposing to change all this).
The vast majority of companies
in Ireland are small private entities, often family owned. The issues which often arise tend to relate
to a conflict between members as to the salary levels of people running the
business, the valuation of shares where someone wants to sell up, or general
business policies, and can have their basis in family relationship difficulties.
In the event of insolvency, the liquidator cannot pursue the assets of the
shareholders, although in practice the Bank has usually insisted on personal
guarantees.
There are legal obligations
imposed by company legislation upon directors, but a shareholder can have no
further obligation over and above the amounts invested, except for any call due
on shares not fully paid.
COMPANIES LIMITED BY GUARANTEE
As with companies limited by
shares, these are separate legal entities, the main difference being that the
liability of the members, or subscribers, is limited to an amount they have
guaranteed to contribute in the event of insolvency, usually a nominal amount
such as €1 each. The company must have at least seven subscribers, and there is
no share capital.
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| Irish companies office front door - Parnell Square |
These companies are very common
in Ireland, because the Revenue expect any new charity company to be limited by
guarantee, so they are invariably charities. The Revenue have standard company
Memorandum and Articles of Association and in practice people tend to just
change the ‘principal objects’ clause.
They are non-profit organisations.
Most companies limited by guarantee are not set up for the purpose of making profits and, not having a share capital, they lack any ready mechanism for the distribution of profits among the members. Many such companies include in their memorandum a clause prohibiting the distribution of profits or capital, and this will be essential if the company wishes to be regarded by the Revenue as being incorporated for charitable purposes.
The accounts prepared for
companies limited by guarantee must be audited (it is proposed that this will
change in the next couple of years).
Directors cannot receive
remuneration, and no dividends can be distributed, but staff can be paid.
When the company ceases to act,
any surplus of assets cannot be distributed, but must be given to a similar
charitable organisation.
The Revenue maintains a list of
companies which have been given charitable exemption from taxation. There is a
standard form for applying for such exemption; when considering such an
application the Revenue will usually consider who is involved in the company,
the arrangements for corporate governance, decision-making, etc. Unlike the rules in England, charitable
activities can relate to foreign countries, perhaps from the long Irish tradition of
foreign missions.
When a company has been on the
primary list of such companies for two years, it can apply to be put on a
second list of charities for which donations attract tax credits.
AS with the company limited by
shares there is no legal obligation on the members, other than to subscribe the
promised contribution of €1 in the event of insolvency.
- Discussion on Company types at the Companies Registration Office website here.
- Company Formation Service here: €255 Irish company formation *
- If deciding to setup a company you may find our business start up calculator useful to see what costs you may have when setting up in business - here.
*For disclosure the supplier referred at www.companyservice.ie is owned by Nolan & Associates.
