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Overview of Company Limited by Liability

Question:

Discuss about the New Firm Registration And The Business Law.

To form a company limited by liability in Ireland, a series of steps need to be followed. It can be mentioned to Robert that a company limited by liability is one in which the members of the company are not fully liable for the loss sustained by the company law. Their liability is restricted to the value of shares held by them in the company. The rules governing the operations of a company limited by liability are stated in the Companies Act 2014.      

Advice to be given to Robert regarding formation of the company

The establishment of a company in Ireland is a complicated process and there are several steps involved in the formation of a company. Companies can be of several types depending on the nature of the company. However in this report, the steps involved in the formation of a limited liability company will be discussed as Robert intends to open a Limited Liability Company.  The essential requirements for the formation of a limited liability company are:

  • Deciding a name of the company
  • Deciding the type of company to be formed
  • Constitution of the Company
  • Setting up the registered office of the company
  • Appointing the directors of the company
  • Appointing a company secretary
  • Raising the capital
  • Determining the shareholders of the company
    • Company Name

The name of the company must be unique to prevent raising confusion in the minds of the people about its similarity to any other company. Certain words such as insurance, group and bank cannot be used in the name of the companies unless special permission is obtained for the use of these words in the name of the company. It is to be stated that the use of names which are considered offensive by the state are also prohibited. The use of non descriptive words in the name of the company is not counted.

  • Company type

            The type of company intended to be formed by Robert in this case is a company limited by liability. It is to be mentioned that a accompany limited by liability is a company in which the members can be held liable for the debts of the same only to the extent of the value of their shares. It can be said that a limited liability company is one, which has both the characteristics of a corporation and sole trader (Bourne 2016).

  • Constitution of the Company

It is to be mentioned that the rules and guidelines of forming a company is governed by the Companies Act 2014 (Irishstatutebook 2017). The Act states that in order to incorporate a company certain documents such as the Memorandum of Association and the Articles of Association must be filed with the Companies Registry Office. According to section 21 of the Companies Act 2014, the company’s constitution should be delivered to the Registrar along with statement in prescribed form containing the name of the first directors of the company, name of the person to be appointed as the first secretary of the company, name of the persons appointed as the first assistant and deputy secretary of the company, the address of the registered office of the company and the place where the central administration of the company would be carried on. The statement to be submitted to the registrar must be signed by or on behalf of the every subscriber of the company’s constitution (Klapper and Randall 2015). It must also have the signature of the ever director and secretary.      

  • Registered Office of the company

Rules Governing the Operations of a Company Limited by Liability

The registered office is the official address of the company. It can be aid that the company must be located within the territory of Ireland. However, the trade address of the company is different from the registered office.

  • Directors

            The directors of the company re appointed to run the company on behalf of the members of the company. The primary directors of the company are the members who establish the company initially. The minimum number of directors to be appointed for private companies is one as stated by the section 128 Companies Act 2014. The appointment of directors subsequent to the formation of the company is generally decided in the annual general meeting by a resolution passed by the members.

  • Company Secretary

It is to be mentioned that an Irish Company must have a company secretary who will be in charge fulfilling the statutory obligations of the company. The responsibilities of the Company secretary include maintaining the books of the company and ensuring that the annual returns of the company are filed on time. It is to be noted that the company secretary can e director as well as a separate person

  • Authorized Share Capital and Issued Share Capital

            Authorized share capital is the amount of shares that a company can call upon if required. However the issued share capital is the actual amount of capital that is raised by the payment by the shareholders for the shares allotted to them

  • Shareholders

It can be mentioned that the share holders are the owners of the company as they contribute to the raising of the capital. The number shares allotted to share holders and the total value of the same represent their proportionate ownership in the company.  The minimum of age of a shareholder must be 18. The details of the shareholders are required to be registered with the Company Registry Office.

            As stated earlier the company which Robert wishes to form is a Limited Liability company. It can be said that a company limited by liability means the shareholders of the company are liable for the debts only to the extent of the value of shares (Hannigan 2015). It can be noted that the a Limited Liability company can avail the pass through feature of taxation just as any partnership firm or sole trader at same time limiting the liability of the members to the value of their shares held by them. A limited liability company does not consider paying taxes or sustain the losses as it acts as a separate legal entity (Haldane 2015). The burden of taxation is borne completely by the owners. The owners have to express the profits of business and the losses incurred by the business in their income tax return statements. There are several advantages and disadvantages of limited liability companies.

  • Advantages
  • The members of the company are liable for the debts only up to a certain extent and do not have unlimited liability
  • Such companies have the freedom of choosing the form of distributing their profits
  • Such companies do not need to comply with legal provision for conducting meetings
  • Pass-through taxation principles are applicable to such companies.
    • Disadvantages
  • Such companies have limited life span and are dissolved by the death of the members or bankruptcy
  • Such companies cannot go public
  • Although the complexities and the paperwork involved for the formation of such companies are lesser than a corporation but they are subsequently more than a sole proprietorship

Formation of a Company Limited by Liability in Ireland

Therefore, to start a company limited by liability the aforementioned steps must be followed by Robert. It can be stated that Robert must consider the advantages and disadvantages of Limited Liability Company prior to forming the company “Pharmacy 4 U Ltd”.

It is to be mentioned that the company intended to be formed by Robert is a limited liability, company therefore the company cannot issue shares to the public for raising the capital of the company. It can be noted that the majority of the shares of the company should be held by Robert to prevent the passing of control of the company to anyone else outside his family. It is to be noted that ownership in Limited Liability Company is determined by either percentage of shares and by membership units. Unlike a corporation a Limited liability company has the power to distribute the ownership interests of the company to any member it pleases regardless of the amount of shares held by the member (Shepherd and Ridley 2015).

A limited liability company has the power to create special voting rights for its members. While forming a company limited by shares the owners must determine the type of membership and the contribution of the same. An operating agreement is a contract which specifies what operations would be conducted by the limited liability company (Tricker and Tricker, 2015). The operating agreement will also include buy-sell provisions and buyout provisions which will in turn govern the transfer of ownership. It can be stated that buy sell agreements generally specify methods of how to place a value on the business and its membership interests. The aforementioned agreement can also place restrictions on membership of the company and can state the methods for recalling the shares from the members who wish to depart from the company. In this case Robert must clearly review the details of the operating agreement of the company he intends to create. It can be mentioned that to avoid the transfer of control of the Company “Pharmacy 4 u Ltd”, Robert must ensure that none of  the shares of the company is issued to outsiders as the same would give them certain control over the affairs of the company.  According to section 105 of the Companies Act 2014, it can be sated that the company “Pharmacy 4 U Ltd” can acquire its own shares to prevent the distribution of shares to outsiders. However such acquisition of shares would made of the profits of the company as stated by Section105 (2a) of the Companies Act 2014. 

Conclusion

Thus to conclude, it can be said that the essential requirements as stated in the Companies Act 2014 need to be followed precisely for the formation of a limited liability company. It can be said that a company limited by liability is easy to be formed as the documentation involved in the formation of such a company is less complicated than a corporation. In this case, it can be sated that the company “Pharmacy 4 U Ltd” can acquire its own shares to prevent the distribution of shares to outsiders. 

Reference

Act, C., 2014. The Companies Act 2014.

Bourne, N., 2016. Bourne on company law. Routledge.  

Haldane, A., 2015, May. Who owns a company?. In Speech, University of Edinburgh Corporate Finance Conference, May 22nd.

Hannigan, B., 2015. Companylaw. Oxford University Press, USA.

Irishstatutebook.ie. (2017). Companies Act 2014. [online] Available at: https://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/html [Accessed 1 Dec. 2017].

Klapper, L., Love, I. and Randall, D., 2015. New firm registration and the business cycle. International Entrepreneurship and Management Journal11(2), pp.287-306.

Shepherd, C. and Ridley, A., 2015. Company Law. Routledge.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

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My Assignment Help. (2019). Steps To Establish A Company Limited By Liability In Ireland. Retrieved from https://myassignmenthelp.com/free-samples/new-firm-registration-and-the-business-law.

"Steps To Establish A Company Limited By Liability In Ireland." My Assignment Help, 2019, https://myassignmenthelp.com/free-samples/new-firm-registration-and-the-business-law.

My Assignment Help (2019) Steps To Establish A Company Limited By Liability In Ireland [Online]. Available from: https://myassignmenthelp.com/free-samples/new-firm-registration-and-the-business-law
[Accessed 18 July 2024].

My Assignment Help. 'Steps To Establish A Company Limited By Liability In Ireland' (My Assignment Help, 2019) <https://myassignmenthelp.com/free-samples/new-firm-registration-and-the-business-law> accessed 18 July 2024.

My Assignment Help. Steps To Establish A Company Limited By Liability In Ireland [Internet]. My Assignment Help. 2019 [cited 18 July 2024]. Available from: https://myassignmenthelp.com/free-samples/new-firm-registration-and-the-business-law.

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