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SMALL BUSINESS MODELS-WHAT ARE THE OPTIONS?

Q  I am planning to start a new business in the manufacturing sector and have found a premises to rent. I have done nothing yet about setting up any form of business. What should I do? Should I set up a company or operate as a sole trader or partnership?

A  If you are starting a new business and have invested time, energy and finance in finding the right product to manufacture and have gone to the trouble and expense of sourcing a suitable business premises from which to run the business then it is essential that you give adequate consideration as to what type of business model you should use for the venture. You should take advice from a trusted and experienced Solicitor and from a good Accountant and Tax advisor.

Accountants and Solicitors tend to view these issues from different perspectives. They each hope to protect you but in different ways. Your Accountant will most likely focus on what might be most beneficial to you from a tax point of view. Your Solicitor is more likely to try to protect you from a liability point of view in case your business were to fail or in case you were sued in relation to the operation of the business. You will need to take on board each professional’s advice to you and to weigh the risks associated with each type of business model and then make a commercial decision as to which to adopt.

SOLE TRADER

The simplest type of business model to operate is as a Sole Trader operating by yourself. This model requires the least amount of paperwork and expense in setting up the business, is often recommended by Accountants for start-up businesses but exposes you to the most risk in the event that anything were to go wrong.

Operating as a Sole Trader does minimise the cost of running your business from a Regulatory point of view as you save on the cost  of making annual returns to the Companies Office but you would still be sensible to engage an Accountant/Tax advisor to make annual tax returns on your behalf to Revenue.

If you plan to trade under a name or style other than your own name you will still have to register this name in the Companies Office as a business name. This process is relatively simple and inexpensive and should not be confused with setting up a limited company as it does not afford you the protection of limited liability.

You, most probably through your Accountant, will need to register with the Revenue and obtain a tax number and possibly a VAT number (depending on the type of business which you wish to start and the turnover rules).

Operating as a sole trader is the riskiest form of business model so you should make sure that you have adequate insurance cover to take care of the risk of a member of the public suing you for injuries suffered at your premises (Public Liability Insurance), for injuries which may be suffered by your employees (Employee Liability Insurance) and for any defects in your products (Product Liability Insurance). If you are not adequately insured or if you do not comply with the terms of such insurance policies and if you are sued then you put at risk not just your business and its assets but your own personal assets and wealth. The advice of an experienced Insurance Broker operating in this area should be sought before buying these types of Insurance products.

PARTNERSHIP

If you do not plan to operate the business via a Limited Company and if you have a business partner/co-owner then you will probably wish to operate the business as a partnership. This is similar in many respects to the Sole Trader model in that you and your partner(s) will be personally exposed to the downside of running a business in the event that it fails.

In a partnership all partners are jointly and severally liable to those with whom the partnership does business. This means that you need to make sure to be fully involved in the day to day running of the partnership and the business activities of your partners. It is no defence to a claim to say that you were unaware as to what your partner had been doing in the business. A successful claim made against the partnership may be enforced in full against any one or more than one or all of the partners. In other words, if you have a 1/3 share in the partnership that does not limit your risk to 1/3 of any liabilities of the partnership.

If electing to run the business using a partnership model, despite the time and effort and expense involved, you would be wise to have a good Deed of Partnership drawn up with each partner seeking independent legal advice before signing it. This deed will regulate the operation of the partnership and provide orderly mechanisms for the dissolution of the partnership if that becomes necessary.

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