DCA Q&A: CAN WE HOLD BACK WAGES FOR INCOMPLETE WORK?

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Q: We had to let one of our employees go last week – it was a mix of cash-flow and levels of competence, as we’d had a couple of clients complaining. As part of a redundancy settlement, we agreed to pay him his full wages at the end of the month.

However, as I’ve been going through his emails and files, I’ve found several jobs that he told me were finished are only half complete. I’ve also found that the clients he was managing are far more angry than I’d thought, and with good reason: he’s been making (and breaking) frankly batty promises to try to keep them happy for months now.

I’m furious – I’ve got to clear up this mess, and I’m 90% sure that we’ll lose business as a result. Do I have to pay him the full wage despite the fact that he clearly misled us?

 

A: Unfortunately, you do. There are set circumstances when an employer can withhold an employee’s wages. If the deduction is required by law (for PAYE or PRSI) or a court order (such as maintenance for a spouse), that’s fine. You can also deduct if an employee has been on strike, or to recover an overpayment of wages or expenses. Any other deductions call for an employee’s consent – arbitrarily taking away the money will get you in a lot of trouble.

 

That’s not to say, though, that an employer has no recourse if an employee’s conduct has actually cost them money – they can seek redress through the courts. Of course, this costs money, and is fairly uncertain, so I doubt you want to do that.

 

What I’d suggest is writing to him outlining exactly what you have discovered, and noting that you do not intend to let the matter lie. The more documentary evidence you have that he deceived you in the run-up to you letting him go, the better. The neatest solution to this, in all honesty, would be for him to waive his right to some (or all) of the payment he’s yet to receive as full and final settlement of any claim you have. However, if he does not agree to do this, you’ll have to pay him what he’s owed and pursue your claim for compensation separately.

 

In the longer term, of course, you’ll have to have a think about what systems and controls you adopt to ensure an employee doesn’t run rings around you again, though I’m sure you already know that. Your best bet is to increase your own contact with clients, letting them know that they can come to you if they’re having any problems.

 

Eamonn Garvey,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

THE FINANCE ACT 2012 – WHAT IT MEANS FOR YOU

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Last month, President Higgins signed the Finance Act 2012, a bill which introduced a number of new measures to improve the business tax regime, into law.

 

 

One of the key features in the Bill was the corporation tax relief scheme for start-up companies. Under the new rules, and in accordance with an announcement by the Minister for Finance on Budget Day last December, new companies may be exempt from corporation tax on trading income for the first three years of operation. While this relief was already in place, the Bill confirms that is has been extended to companies commencing trade up to and including December 31st, 2014. Here, the maximum annual liability for which shelter is available under this scheme is €40,000 but the amount of relief available will be dependent on the amount of employer’s PRSI paid by a company and the number of staff it employees.

 

Another key development for business is the tax relief that applies where a company receives dividends from trading profits of a business that is tax resident in the EU or country that Ireland has a double tax treaty with. The rate of tax on dividends received from foreign bodies is usually 25%. However, under this scheme, the relief provides exemption from tax on dividends received by share dealers from portfolio shareholdings. The relief has also been extended in the Bill to also include dividends from companies located in countries with which Ireland has ratified the OECD Convention on Mutual Assistance in Tax Matters This opens up new markets for Irish companies, including Brazil, which is due to ratify the OECD Convention this year.

 

Generally, the Bill includes measures to support job creation and enhance Ireland as a destination for foreign direct investment, including foreign earnings deduction to support businesses that promote Irish exports to high growth economies such as Brazil, Russia, India and China. Also, the Bill sets out to reward the R&D efforts of companies here by allowing firms to reward key staff in this area by giving them the option of transferring a portion of their R&D tax credit to personnel who are heavily involved in research and development. Also, the government has set out guidelines which will make it much easier for businesses to claim the credit.

 

The Special Assignee Relief Programme, which was announced on Budget Day late last year, was confirmed in the 2012 Act. The purpose of the programme is to allow tax relief for Irish companies seeking to attract highly experienced personnel from abroad. Much has been written about the ‘brain drain’ that the Irish economy is suffering and the decision of highly skilled and specialised individuals to snub Ireland in favour of other jurisdictions with less penal tax codes. This measure should go some way to addressing the issue.

 

The Act also saw the extension of tax relief for corporate investment in renewable energy generation while improved relief for excess tax on royalties for the software industry were also highlighted.

 

For a full copy of the Bill, click here or contact us to see how we can help your company take advantage of some of the new measures announced by the minister last month.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

SHOULD WE CHARGE VAT?

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Q) We’ve just signed a contract to do some work on behalf of a well known charity. Our payment terms are 50% of the agreed amount upfront, 25% to be paid on completion of half of the contract, with the outstanding balance due once the project has been delivered in full.

However, when we submitted our first invoice, I was told that the charity wasn’t registered for VAT and that I would have to amend the invoice accordingly. I thought this was a little unusual so I asked a colleague of mine who works in another firm that carry out work on behalf of other charities if this was the case. He said that his firm charged VAT in the way they would any client. Is that the case here?

 

A) Generally, you should charge VAT in the normal way irrespective of whether the organisation you are dealing with has charitable status or not. There is no general exemption in respect of VAT for such organisations and therefore you should charge accordingly.

 

However, I can see how this could cause some issues for you – you don’t want to tell your client how to do their job or question their practices. As charities are not regarded as supplying goods or services in the way a trading company would be, they are neither obliged nor entitled to register and account for VAT on their income. However, since your company supplies good and/or services in the normal course of business, you must charge VAT.

 

The problem here is that the charity will not be entitled to a repayment of VAT incurred from its business dealings with you. It’s best to explain to them that you have to charge and that they should look into recouping any funds they feel entitled to themselves.

 

If you feel that they are being non-cooperative, you may have to renegotiate the terms of the contract to take into account a smaller margin if you’re left to foot the VAT bill yourself, or simply walk away from a project that isn’t as profitable as you first thought. This isn’t your problem but it will be if you don’t carry out normal business procedure.

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

 

GET YOUR COMPANY EXPORT READY

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Most solid Irish companies that want to scale up have an eye beyond these shores – for many businesses, the home market alone simply doesn’t have the breadth and depth to sustain growth. But exporting isn’t as easy thing to do, and many business owners have wasted money on ill-thought-out international expansion. If you want to avoid that fate, you need to lay some groundwork and get your company export-ready

Define Your Offering

 

Your first step to successful exporting is to define what product or service you offer that’s genuinely unique while also being profitable. In some cases, an idea that’s successful in Ireland is immediately transferrable to other markets. Usually, however, businesses that have a clear innovation edge in Ireland will face competition in a broader market. Tweaking your product or service to be uniquely valuable or cost-competitive may require accepting a lower profit margin, or even extensive redeveloping. If you offer a range of products or services, you may consider simply focusing on your most popular – or valuable – offering.

 

Define the Opportunities

 

Running in tandem with this process, you also need to research in depth what opportunities are out there. English speaking markets, from the UK to the United States and further afield, are the low-hanging fruit. However, if you are able to break down the language barrier – either through your own skills or easily-tapped expertise – you should include other accessible markets in your research.

 

There are a few obvious questions that you need to ask of each market: “what kind of demand (or potential demand) is out there for your product or service?”, “what companies are competing in this area?”, “how successful are they?” and “what can you do differently?” spring to mind. After these initial questions, you’re better off homing in on the most promising market for even more research – which should include at least one physical visit to the country.

 

Find a Process

 

Even if you’ve successfully identified your target market and refined your product or service to suit it, that isn’t going to ensure success. We see far too many businesses simply striving to win contracts in a scattershot way without any idea of how they’ll actually service them. Needless to say, this doesn’t end well.

 

You need to have a fresh look at your business processes, from sales to product and service delivery, factoring in how distance and increased travel costs will impact on them. In some cases, you’ll have to tear up a blueprint that works well domestically and design a new one for the new market. In other cases, you may just need to absorb the cost of a local sales agent. The most important thing is to genuinely consider the issue.

 

There’s considerable work involved in getting your business ready to export. Fortunately, you don’t need to do it alone. Enterprise Ireland offer a considerable range of supports, ranging from simple advice to R&D grants, funding for market research and participation in trade missions.

 

At DCA Accountants and Business Advisors, we help many businesses through the process of getting export ready, whether that involves developing a business plan, assistance in the tax implications of exporting, liaising with external agencies, or just about any issue potential exporters face. There’s a helpful breakdown of what they offer here.

 

We’re also always willing to talk to SMEs about what they might need. If you’d like to contact us, we can organise a free, no-obligation consultation that will help you on the road to international expansion.

 

 

Eamonn Garvey,

 

Partner,

 

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

PERSONAL INSOLVENCY BILL IS THE RIGHT WAY FORWARD

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In January this year, Minister for Justice and Equality Alan Shatter announced what I believe to be one of the most progressive pieces of legislation that we have seen for some time. The Personal Insolvency Bill 2012 will be welcome news to thousands of Irish people right now in that it deals with the financial difficulties of general insolvency, negative equity and mortgage debt.

 

If the Bill is approved in the Oireachtas, a state-operated Insolvency Service will be set up to run new non-judicial insolvency arrangements. Three voluntary debt-settlement systems will be put in place while the period of bankruptcy is likely to be reduced from the draconian 12 years to three years.

 

All of this is good news for struggling households and it means that if you are suffering with large debts, you may soon have some breathing room.

 

The first of the three voluntary debt-settlement systems deals with those who have unsecured debts worth under €20,000. If this is you, and you do not have assets with a total value of more than €400 and have less than €60 disposable income per month, you can apply to the new Service for a Debt Relief Certificate. This allows for a one-year moratorium period where creditors cannot pursue you for debts covered under the certificate. If, at the end of the year, you have not paid off the debt, it will be written off. As good as that sounds there is of course a catch. A single person can only apply for two debt certificates in their lifetime and the award of two certificates can only be six years apart. Regardless, this will allow those struggling with debts some time to get their house in order without the pressure of creditors breathing down their necks.

 

The second system deals with unsecured debt of over €20,000. Someone in this position can apply for a Debt Settlement Arrangement. To begin with, if you find yourself in this situation, you must prepare financial statements with the help of a personal insolvency trustee. Once complete, an application can be made to the Insolvency Service for a Protection Cert – while this is being prepared, debtors cannot move against you. It will take roughly 30 days. Once in place, the arrangement outlines how debt is to be repaid over a five-year term and is presented to your creditors. However, your plan can fall down if 65% of creditors do not approve the proposal – creditors can also challenge the arrangement and have it annulled by the Courts. Again, there is a limit on how many times an individual can apply here – in this instance, just one Debt Settlement Arrangement is permitted in a ten-year period.

 

The third and final proposal applies to those with secured and unsecured debts of between €20,000 and €3m and is known as a Personal Insolvency Arrangement. You can apply here even if you have income but are unable to pay your debts as they fall due. A personal insolvency trustee will decide if you fall into category two or three – in this case, you must show that you will be insolvent for a period of five years. While preparing a certificate under this proposal, creditors cannot pursue you for 60 days. Unsecured creditors are then offered an agreed percentage of what they are owed, which will be repaid over six years. If you are in negative equity, this amount could well be written off under this arrangement. 55% of unsecured creditors must agree to the terms, while 75% of secured creditors must get behind your plan before it can be enforced. However, if you sell your home during the six-year period and it fetches more than you expected, this will be taken into account and any amount that was written off can be adjusted. The same rules apply if you inherit a large sum during the six-year term. Because of the magnitude of debt the Personal Insolvency Arrangement deals with, it is no surprise that it is a once-in-a-lifetime deal.

 

These proposals will certainly help those struggling with debts and may stave off bankruptcy for many. However, if every avenue fails under the proposed new agreement, judicial bankruptcy is still an option. The new Bill provides ways to avoid it and if implemented correctly, it could help thousands of Irish people suffering under the weight of their debts.

 

DCA Q&A: SHOULD I LOOK FOR AN INVESTOR?

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I have been running a small photography business in Galway for the last two years. Up until now I’ve managed to keep the company going through savings that I had myself and also by increasing the amount of clients I have. However, lately I’ve found myself in a tight spot when it comes to cash flow – there are plenty of outstanding invoices but people are taking a lot longer to pay: I’m generally waiting 90 days for payment on most of my accounts.

 

I also want to grow the business – now that I’ve created enough business to pay myself and more, I’m thinking of opening a studio in the city and taking on another photographer.

 

I’ve accepted that cash flow is going to be tight in terms of getting paid on time for the work I do so I’m considering looking for an investor to get me through. I think somewhere between €20,000-€30,000 would help me get to where I want to be. Is this the right road to take?

 

First of all, congratulations on setting up by yourself. It’s never easy to take that first step and, by the sounds of it, you’ve built a good company in a relatively short space of time.

 

Unfortunately, you’re not alone when it comes to outstanding invoices – 90 days (or more) seems to be the norm these days from what we have seen.

 

I’m not sure that finding an investor is the right thing to do here. If you manage to find someone who wants to invest in your business, which can be a difficult challenge in itself, you’ll have to give away equity in your company in return. Depending on how much business you’ve created and how much the company is valued at, that figure could be as high as 50%, meaning that all of the decision making about how the business is run is taken out of your hands. You’ll have someone else to consider when you’re making plans and end up drawing up a partnership agreement or shareholders agreement.

 

If, however, you feel that the investor can bring other opportunities (such as new contacts/potential customers) or expertise to your business and is not just a cash investor, then perhaps it’s worth taking it more seriously.

 

But I believe that the best route for you is to prepare some management accounts and cash flow projections and an outline of how your business is performing and apply for a business development loan with your bank – it’s likely that an investor will seek this information also and so it should not be a wasted exercise. Once your financials are in order, you will have a good chance of securing the money you need and can structure the repayments to suit. If your bank is closed for business, as some are these days, go to another lender. Just because you have an account with one institution, doesn’t mean you can’t approach another one. There are other options such as First Step Finance who provide loans to start-ups to €25,000 over three years. However, the interest rate is slightly higher here so you’ll end up repaying more than you would if you managed to secure the money through your bank.

 

Eamonn Garvey,

 

Partner,

 

DCA Accountants and Business Advisors

 

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

DCA Q&A: HOW CAN WE WIND DOWN OUR COMPANY?

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I’ve been in business with four other business partners for roughly six years now. Things had been going well for us – we are suppliers of materials to the construction industry – until last year when our sales took a big drop.

 

We did everything any business would do to get through a difficult patch – we made cuts to our staff and tightened up on housekeeping where we could. It looked as if we were going to be ok but one of the directors of the company suggested that we delay our returns to the Revenue in an effort to sustain cash flow.

 

I was completely against the idea but was out-voted after we had discussed it at length. Since then we’ve decide to wind down the company but the other partners still do not want to pay the taxes that are owed given that we won’t be in business any longer. What should we do?

 

If you fail to file annual returns, the Companies Registration Office can shut down your company in what is known as an Involuntary Strike Off – the CRO has the power to do that if you miss even a single return so you and your business partners are playing with fire.

 

If you haven’t received a warning of this already, expect it to come soon. When it does arrive, bring it to the intention of all of the directors and make sure they are aware of the consequences of not paying their dues.

 

If you, as a board of directors, continue to ignore the warnings, the company will be struck off and any assets that you have will become the property of the State. What’s more, you will all lose your entitlement to limited liability – therefore you will no longer be protected and the debts of the company will become yours and your business partners. This is a pertinent point as even if the company is struck off by the CRO, the company’s creditors can take a case to the high court to have the company restored and a liquidator appointed – you will all be held personally responsible for any outstanding debts. Also, if you pursue this course, you may be disqualified from becoming a director of another company in the future.

 

If you are certain that the company needs to cease operating, then a voluntary strike off is by far the better option for you – at least this way you are in control of the situation. However, you can only apply for this as long as there are no assets or liabilities within the company and when all tax affairs are in order. This may involve the directors loaning the company money to pay up creditors and then writing that debt off.

 

 

If you go down this road, you will first need to make sure your CRO and revenue filings are all up to date. You then request a letter of no objection from the Revenue Commissioners. Click here to find out where to send your request and what to write.

 

 

Even after this is done, you have to place an advert in a national newspaper with details of your intentions – this must be done up to four weeks prior to the application for strike off. It seems outmoded but, to the CRO, it’s the most effective way to ‘smoke out’ any creditors of the company who might object to a voluntary strike-off.

 

In this situation, I wouldn’t advise a game of cat and mouse with the CRO – after all, there will only be one winner. You and your business partners, as the losers in the whole affair, could be getting yourselves into more trouble than you know.

 

Eamonn Garvey,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

WAYS TO SAVE FOR YOUR COMPANY

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Over the past 18 months or so, a number of our clients have asked our advice on how they can cut business costs without harming the day-to-day running of their company, or indeed productivity. Obviously, there is only so far one can go when it comes to making redundancies – a reduced workforce, after all, harms the capability of the business to produce or provide the product or service that they are in business for in the first place.

 

After a little research and some implementation into our own business, it struck us that there are a number of areas where non-detrimental cutbacks can be made. What’s more, most of these trimmings have a lasting effect on the bottom line.

 

When I delved into it a little further, I found the Sustainable Energy Authority of Ireland (www.seai.ie) to be a great resource for helping with energy costs. With a couple of clicks on the SEAI website, business owners can find the ‘Quick Wins’ section that offers helpful tips on how to ensure that you are making the most efficient use of energy in your business. The helpful people at SEAI have even broken it down by sector so you can see at a glance some useful hints relating very specifically to your own business.

 

That’s not even the best bit. There are grants available from SEAI for commercial entities to help companies introduce better and more efficient energy saving mechanisms. For more on financial help available from the Authority, click here.

 

Also, it seems that the SEAI are pushing hard to promote the use of electric vehicles. The Authority can help those companies with large fleets to make the transition with a grant towards the provision of electric vehicles. There’s also the added benefit that companies can make up to 33% savings in fuel costs by making the switch.

 

Cloud computing

 

We’ve also looked closely at introducing cloud computing into our operations at DCA Accountants and Business Advisors. The big advantage from a savings point of view is that cloud computing negates the need to maintain a main server. It also helps reduce the loss of man hours – staff can get access to their work information from anywhere, which also helps speed up the time it takes to carry out projects. Downloading information and files is also much quicker and more efficient than using a regular server. Introducing cloud computing to a business will save on IT maintenance costs in the long run too. There is also a decreased risk of downtime in the office if there is no longer a reliance on a server.

 

However, what one should be aware of here is that cloud computing is only available in an area where there is fibre optic cable as opposed to copper wiring. There have been giant strides made in getting businesses online throughout the country in recent years so if your area is not equipped with fibre optic cabling right now, it shouldn’t be too long before it is. There’s much more information here on the benefits of cloud computing.

 

There are obviously more immediate measures that can be taken to reduce costs that won’t alter in any way how you do business. By comparing mobile phone providers, or other utility suppliers like gas and electricity companies, businesses can shave a lot off their bi-monthly bills in one go. When making decisions on providers in all of these areas though, it’s wise to read the terms and conditions carefully and to carry out an analysis of what you would typically pay for electricity, for example, over a three year period. Armed with that information, you can make an informed decision on which supplier suits your company best. It’s also a good idea to have a housekeeping discussion with your staff and possibly introduce new policies on the use of printers, company telephones and other resources that are not necessarily for personal use.

 

Spending some time reviewing company outgoings every month is well worth the effort – most businesses that we’ve dealt with or spoken to have made savings as a result, some more than others obviously. Nevertheless, the more that is put back into the company, the more productive it will be in the long term.

 

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors.

 

If you have a question for our DCA Q&A section, please email us at info@dca-ireland.com and we’ll get back to you.

Individual names and company names will not be published to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

IS INVOICE DISCOUNTING A VIABLE OPTION FOR MY BUSINESS?

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  1. I’m having real cashflow problems in my business at the moment – we’re still outstanding payment on some invoices going back as far as August last year, while others we’ve had to right off as bad debts and accept that the account won’t be paid for one reason or another. We are a small business with 10 employees in total. My wife and I are responsible for the accounts but now I’m worried that I won’t be able to meet the wage bill in March if the situation doesn’t improve quickly. I’ve looked at ways of getting cash in to help tide us over but the only option I think is open to me is invoice discounting with my bank. Should I go ahead with it?

 

  1. First off, you’re not alone. Hundreds of businesses like yours are struggling with cashflow right now. Sales may look good on paper but if you’re not getting paid on time, it can really harm your business, as you are finding out right now.

 

Invoice discounting can work in a situation like this but you need to enter into it with your eyes wide open – it’s certainly not a long term solution to your problems and it could end up costing you more than you initially think. A lot of business owners think that getting 80% of the value of an invoice is akin to getting cash up front – it’s not. You’ll be charged at least 3% as long as you make the repayment in time. If your debtors are dragging their heels, like they are in this situation, then you could end up being penalised even further and you’ll end up with another problem of your own making.

 

If you fail to meet your end of the bargain when it comes to repayments, your bank is likely to reduce the amount that they’re willing to give you on future invoices. You’ll find that you’ll receive a diminishing percentage of an invoice if you can’t meet your obligations and therefore cashflow becomes a problem again. You’ll also be hit with higher charges.

 

My advice to you is to talk to an expert in credit control before you make any decisions. You will probably be better off outsourcing that function in the long term – a professional services company in this area is much more likely to recoup payments than you are yourself given that it’s their area of expertise.

 

Invoice discounting can help and it can be beneficial to a company if it is in a situation where clients make more regular payments than you are experiencing now. However, in this case, I would advise you to explore other options, like speaking with a specialist in credit control, before going down this route.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors.

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

 

DCA Q&A: HOW SHOULD WE SET A NEW COMPANY UP?

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A client of ours wants us to go into business with him. He currently operates as a sole trader while our company is set up as a partnership agreement, with three partners involved. We’ve obviously discussed the opportunity at length between ourselves and it sounds like a great chance for us to grow our business. However, our client wants us to set up a new company so as to make everything transparent and above board. We’re fine with that but we were wondering how it effects our current situation. For example, are we exempt from corporation tax with the new company under the new rules despite the fact that we’ve been operating our own business for four years now? As I mentioned, we’re very keen to enter into business with this client but we want to make sure that we’ve set it up properly from the outset. Can you advise us on how we should go about it?

 

From the information that you have provided here I think the cleanest way of doing this is to set up a limited company whereby all parties involved decide on a share split. From a legal perspective, if things don’t work out or if the business doesn’t grow to where you would’ve liked it to after a certain period of time, it’s a lot easier to wind up. Hopefully that won’t be the case for you but as a legal entity, there are very defined constraints in terms of who owns what and what the company can actually do in an incorporated structure. If one party decides further down the line that they want out, it’s much easier to buy shares from a limited company than to organise a buy-out in a partnership arrangement, for example.

 

If you do decide to incorporate the company, ensure that there is a shareholders agreement in place from the outset. This basically sets out the rules and guidelines of how the business is run and in the event of a disagreement between the parties involved, it can prevent an escalation of legal proceedings as the rules are defined at the very beginning and everyone involved is aware of them.

 

Another option available to you is to set-up a Joint Venture (JV). Here, you will have to register another entity for tax. While, on the face of it, a JV is similar to a partnership, from a legal point of view they are very different things. For example, with a partnership, you have to make sure that all ends are tidied up – if it’s left open-ended and a partner hasn’t been moved on or hasn’t terminated his/her position within the company, in theory, he or she is entitled to a percentage of the profits earned for the rest of time. However, if the new company is set up as a JV, it protects both parties from the new business encroaching on the other companies that you both already have.

 

I would advise setting up a limited company here on the basis that it’s tidier and it’s easier to wind up if things don’t work out in the future. Also, it offers limited liability so nobody involved will be personally liable for the any debts accrued.

 

The downside is that a limited company is more expensive to run from an accounting and administration perspective – at the end of the year you can expect to add on an extra €1,000 for accounting services. However, there are a lot more tools available to lower tax liability with a limited company so the net financial gain will probably outweigh the extra costs.

 

You will also qualify for a corporation tax exemption given that you are setting up the company this year. Minister Noonan announced that the three-year exemption for start-ups is to be extended for companies that commence trading in 2012, 2013 and 2014 in an effort to encourage entrepreneurship.

 

Best of luck.

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors.

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.