Sole Trader

A sole trader runs a business on his/her own. Businesses can be set up straight away if trading under the owner's name. Otherwise, the name has to be registered with the Registrar of Company Names. Some sole traders need a licence.

Advantages:

• Easy to set up
• Can keep all the profits and make all the decisions
• May know customers personally

Disadvantages:

• Unlimited liability
• May have to sell personal assets to cover debts
• Has to provide the capital and suffer all losses
• Responsible for all areas of business
• No continuity

Private companies

Owned by between two and fifty shareholders, who have a vote for every share they own. The private company must have the letters Ltd or Teo after the company name.

Advantages:

• Shared responsibility
• Shareholders only lose what they have invested
• Private assets cannot be sold to cover debts
• Continuity even if a shareholder dies

Disadvantages:

• More costly to set up than a sole trader
• Profits are shared between the shareholders (in the form of a dividend)
• Legal requirements with respect to formation are complex
• Shares cannot be sold on the stock exchange

Co-operatives

Owned and managed by their members, who each must own at least one share.

Advantages:

• Members have only one vote no matter how many shares they own. Everyone has an equal say
• Members have limited liability

Disadvantages:

• No incentive to invest more money as a member has only one vote, regardless of the number of shares
• May lack finance and business expertise
• May be too small to compete successfully

State-owned companies

Set-up and run by the government. A Minister is responsible for each company. When a State-owned company is sold to private individuals, this is known as privatisation.

Advantages:

• Any profits go to the government or are re-invested
• Provides employment and essential services

Disadvantages:

• May operate at a loss and require government funding
• May be monopolies which, due to lack of competition, become inefficient

Setting up private companies

Before setting up a private company the following must be completed:

• A Memorandum of Association and the Articles of Association
• A declaration of compliance with the Companies Act 1963-1990
• Statement of nominal share capital
• Consent by those who agree to become directors

Completed documents are sent to the Registrar of Companies. Once the documents are passed, the company is issued with a Certificate of Incorporation. Legally, the company is now separate from its owners. It can now sue or be sued.

Memorandum of Association

States the relationship between the company and the general public and contains the following information:

• Name of the company, including Ltd or Teo
• Objectives of the company
• Statement declaring the liability of the shareholders
• Statement of nominal/authorised share capital
• Signatures of the shareholders and directors

Articles of Association

States the internal rules and regulations of the company and contains the following information:

• Name of the company with Ltd or Teo in it
• Voting rights of the shareholders
• Procedures for calling meetings and electing directors
• Details of share capital (nominal and authorised)
• Borrowing power of the company

Recording the issuing of shares

Every business transaction involves giving and receiving. In a private company the bank account receives the money and the share capital gives the money. If shareholders invested €50,000 in a company, the amount would be entered on the debit side of the bank account and on the credit side of the share capital account.