# Startup with 4 founders, partnership Vs. Limited company?



## pauln (19 May 2009)

Hi,
     There are 4 of us starting up a internet service business. I've been doing a lot of reading both here and other sources on company formation. Most of what I've read has been comparing sole-trader Vs. Limited company.

     Does anyone have any advice on setting up a partnership Vs. a Limited company, pro's and con's etc. ?
     Has anyone else set-up a business with multiple founders, what form of company did you go with? How has it worked out?

Thanks in advance,
Paul.


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## sartay (20 May 2009)

Try this, it compares sole trade & partnership vs. limited company

[broken link removed]


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## onq (20 May 2009)

I am not an expert in all of this so check all advice freely given.

A Sole Tradership can be very cost effective.
It is very useful for single professionals working alone.
Sole Traderships can inclue one or two employees under their umbralla.
They are great for firms of one or two people and/or for people who run businesses from their homes.
Yearly accounting returns are less onerous but you would be welll-advised to still have accounts done professionally by an independent chartered surveyor.
You are pretty well completely exposed in terms of liability and fiduciary responsibility.
You need good professional indemnity or other insurances to protect you from catastrophic losses/claims.

Partnerships used be very popular amongst professionals.
They allowed a greatly increased workload to be addressed.
They allowed pooling of resources and sharing of adminstration costs
They allowed collegiate companionship and instant mutual advice and assistance.

However, setting one up properly still needed careful consideration.
The problems with Partnerships is always the other partners 
There are issues relation to fair distribution of workload, monitoring and control
What are the duties of the ther partners, what do they bring to the table?
How are the profits [you should be so lucky] to be divided?
What mechanism is available to call another partner to task?
Unless its set up as a limited company other competent, law abiding Partners can end up being personally liable for one errant other partner's malpractice or crimes.
Unless you have a formally set up Partnership Agreement, you may find you're not a Partner at all!
And as a professional in an unlimited company, you may have significant liabilities to third parties as well as fiduciary responsibility to members of the public.
You are even more exposed in terms of liability and fiduciary responsibility than a sole trader, and as the projects may be larger and more costly, so the claims arising may well be significantly larger, even on a pro-rata basis.
You need lots of good professional indemnity or other insurances to protect you from catastrophic losses/claims.
So partnerships have fallen out a favour in recent years.

That leaves the Limited Company.
These are no longer the "trade badly and walk away" deals of yore.
Nor can you go around running up debts, paying them with the VAT, winding up the company and starting up a new one.
There are also significantly higher duties of care for Directors and Shadow Directors.
Just preparing the accounts, advertising and holding the AGM in a compliant manner can demand significant time and energy.
But the company tax and the limited liability sweetens the pill.
But hold on a moment - this is like the Eddie Hobbs line "you cannot benefit from the equity built up in your home unless you sell it and live in a tent."
You cannot rely on the limited liability clause except as a shareholder. Directors who trade fraudulently of incompetently may still be liable under the law.
And availing of the limited liability is only done at a time of collapse, when assets are not sufficient to cover debts, liabilities or claims.
You should visit the website of the Office of the Director of Corporate Enforcement at http://www.odce.ie/ and learn about the roles and responsibilities of Directors, Shadow Directors, Company Secretaries, Shareholders and the like.
Be aware also that, as an employer and a director, you are obliged to know about 

employment law, 
safety, health and welfare at work law and 
all laws that apply to carrying out your business in whatever country/jurisdiction you trade in.

One piece of free advice you would do well to take is to ensure one of you is a damned good organiser/project manager/time management expert.

Another might be that you should "test the water" amongst yourselves before setting anything up formally.

You might do this perhaps by going on a focus group weekend with a Facilitator [or whatever they're called now] to express your ideas about the business venture and communicate them to each other, to assess each others strengths and weaknesses, particularly in the areas of communication and co-operation

You should do this to make sure each of you share the same ideas in terms of understanding what the proposed business venture is about, each persons responsibilities in the structure of the firm, your own personal aims and ambitions and to initially outline a projected "five year plan" if you have not done so already.

You'd be surprised how many ventures fail to establish these basic yardsticks.

Not everything can just come together like a teenage rock band.

That's enough to think about for now.


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## oopsbuddy (21 May 2009)

onq said:


> Yearly accounting returns are less onerous but you would be welll-advised to still have accounts done professionally by an independent chartered surveyor.



I reckon an accountant would be a better idea!


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## mathepac (21 May 2009)

oopsbuddy said:


> I reckon an accountant would be a better idea!


Hhhmm onq seems to be  an expert - company law, partnership formations, accounting requirements , Scottish law and planning issues, etc


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## onq (22 May 2009)

mathepac said:


> Hhhmm onq seems to be  an expert - company law, partnership formations, accounting requirements , Scottish law and planning issues, etc



<bows>

Aggghhh! Your biting wit hath skewered me to the bone!

LOL!

Last year I worked with a solicitor to update a Residents Association Articles of Association, so I learnt a lot about company law in a short time.

Before that I worked with a residents group who hired a Facilitator for a day and it opened my eyes about how easily incompatible assumptions can flower unknownst to you in groups of people supposed to be working together towards the same end.

Previous to that, I was peripherally involved in a partnership dispute [I wasn't a partner] and I saw some hard lessons learnt by others.

Before that again, I set myself up as a sole trader, retained an accountant and looked at the pros and cons of the whole business set up.

And before that again I qualified as a architect and had the various forms of firm, including partnerships ourlined during my studies.

One of my clients was involved in a dispute over an outfall, so I learnt a little about easements.

Finally over the years I have learnt a lot about Irish Planning Law and the Building Regulations and the Scottish and English version often mirror ours.

So all of the advice I gave I have either indirect/direct experience of or have been thought about in a third level course, or I've learnt it as part of practising my profession.

But "expert" to me is a terrible term.
It suggests you're elevating yourself towards Godhood.
I prefer to leave that to the Supreme Court or the European Court!


I prefer "competent", which implies "up to the standard current at the time".

Today's "expert" is tomorrow's abject failure if he doesn't keep up.

"Competent" means you can give good advice



Enough from me.


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## onq (22 May 2009)

oopsbuddy said:


> I reckon an accountant would be a better idea!



D'ohhh...

My masterplan to suck all the accounts into the surveyors office failed again!!!


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## Chief Seamus (5 Jun 2009)

My employer's solicitor in West Cork did all the paperwork for him last year when they were setting up the company. They looked at all the options and decided on the limited company for the following reason. If you ask yourself the same question it will help you decide.
Do the 4 of you intend expanding and employing additional people? If so then a partnership gets more difficult from an orgaisational point of view as time goes by. They chose the comapny route.
A year later it was excellent advice.


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## ejger (6 Jun 2009)

Would agree with Chief Seamus. Im an Chartered Accountant and nine times out of ten, I recommend limited companies mainly due to a/ the limited liability as Ive seen too many startups go south and b/ there tends to be more tax planning opportunities. 
The down side is much less compliance than a partnership although partnerships are hazardous arrangements unless you have a properly drafted partnership agreement. 
I would recommend you get legal advice on such an agreement if you were going down that route and assume that one of the four of you is going to leave in a huff.

Pm me if you want further advice


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