New Company – What Next?
Over the last 12 months we are thankfully seeing more and more businesses not only commencing but starting to grow and generate more profits. This is very positive to see and is resulting in previous “one man show” type businesses starting to take on an employee or two.
When a business arrives at this stage it is progressing onto a new level and with that comes additional (different) stresses, pressures and responsibilities.
Something we often look at for clients at this stage is the option of operating their business through a company. In some cases this is looked at when establishing while others take that extra while and will initially operate as a sole trader. In previous blogs we have looked at the advantages and disadvantages of each – see this link.
In this post we are going to look at the scenario that you have chosen to operate as a company and that this has been carefully considered. What next – what are your responsibilities and various requirements?
There can be significant tax and limited liability advantages to operating through a company. However, being a company Director brings with it additional responsibilities which should not be ignored. With proper planning and advice these responsibilities can be easily met to ensure you and your company remain compliant.
But sure it’s my Company
It is important to understand that the company is a separate legal entity from yourself, so if you previously traded as the individual Michael Noonan, when you form a company it will require its own name. This could be as simple as Michael Noonan Limited. All companies are registered with the Companies Registration Office and so it will be that office that determines if the proposed name is appropriate or not.
Once this separate legal entity is established it is completely separate from the individual. The owner will probably be a director of the new company. Keeping with the same names Michael Noonan would be a Director of Michael Noonan Limited. The company will have its own bank account and its own tax registration details. All transactions entered into will be between the Company and third parties – customers, suppliers, insurance providers etc. Therefore while pre company days Michael Noonan might have paid for the weekly shopping using the business account and accounting for those transactions as personal drawings, this is not the case for the company. This would be considered a loan to a company director and while there are occasions when such loans are allowed it is best to default to eliminating transactions of that nature between owner directors and the company.
The hardest change will therefore be the mind-set change and ensuring that a weekly or monthly salary is operated for the owner/director. Our advice in this case is generally for the owner/director to establish the amount of money they need each week or month and to pay themselves a wage accordingly ensuring that the appropriate payroll taxes are deducted.
It just all seems to be forms and filings
It can certainly sometimes seem daunting when you establish a company as there is a significant increase in the paperwork and filings required but that is what we are here to help with!
This is a form that needs to be completed and filed with the Companies Registration Office. It records the standing data of the company such as name, registered address, directors, shareholders and if there were changes to either. This needs to be filed once each year with the first return happening 6 months after incorporation and then every 12 months thereafter. The date can be extended by up to 6 months once in every 5 year period. It costs €20 to file this form with the CRO.
While the form seems to be quite harmless it can cause all sorts of pain if it is filed late. It is linked to a company’s ability to claim the Audit Exemption. If it is filed late the Company loses the audit exemption for two years. This is extremely costly as the additional time, effort and testing that has to go into completing an Audit could easily add €’000’s to the fees. In addition for some small companies it is very difficult to even complete Audits as generally the required level of financial controls does not exist.
Top tip – A company Annual Return Date is abbreviated to ARD. You can find the date by using the search facility on the Companies Registration Office database. There is an extension of 28 days given when the return is filed online. Know the ARD and work with your Accountant to ensure that this date is NEVER missed. This will avoid the last minute stressful drive to the CRO offices in Carlow begging them to accept the returns on time (we have all been there!)
As a company enjoys “LimitedLiability” status it is required to file financial information along with its Annual Return which will become public information.
A company has a requirement to produce what are known as full shareholder Accounts every year. These accounts are a lot more detailed than sole trader accounts and contain various notes which are required by Company law. Small companies (Sales less than €8.8m which are the vast majority of companies in Ireland) are generally entitled to file an “Abridged” or shortened version of the full Accounts. This means that only this limited information will make it into the public domain. The most recent Companies Act extended the requirement for small companies to include the detail of the overall remuneration paid to directors. This means that for a single director company or a company where a husband and wife are directors it is clear from the notes to the Abridged Accounts what the directors earned through salary from his or her company in a year. This has been quite contentious and could be seen as being quite unfair especially in smaller rural towns. We will have to wait and see if this rule changes in future Company Act versions.
The Abridged accounts get filed at the same time as the Annual Return.
Top Tip – consider if this is going to be an issue for you prior to establishing a company. Talk to your adviser and ensure you have a plan in place.
There are various company types but the vast majority are Companies Limited by Shares or LTD for short. This type of company can have as few as just a single director however all have to also have a company secretary. In the event that there is only one director, the company secretary cannot be the same person.
The recent changes in company legislation mean that a Company Secretary must now have the necessary skill and resources to execute their role. Fear not……this is where we can come in again! It does mean that the role has to be given the care and resources it deserves.
The company secretary has various roles and duties to perform (which can be outsourced) such as:
- Maintaining the register of shareholders and directors
- Organising the AGM. In most cases a company is required to hold an AGM once in every calendar year and no more than 15 months apart
- Taking minutes of the AGM and any other general meetings of the shareholders
- Maintain the company seal
Top Tip – discuss your requirements with your Accountant. This area will hopefully never become an area of concern for you. When it does however, (disputes, succession, drawing down finance) it can be really time consuming and expensive to rectify. Give this area the resources it requires to ensure you can sleep easy and focus on the one thing that matters – growing your business.
Having a company certainly has additional responsibilities. Once correctly planned for however the benefits and advantages that a company can bring you as you grow your business and plan for your future will nearly always far exceed the additional investment required. If you require any further information or help get in touch.