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1) Company Structures

Compare private limited companies with two other common forms of

business structure
Private Limited Companies
1) Unlike a sole trader or a partnership, in a limited liability company, the
liability of the members in respects of the companys debts or
wrongdoings is limited only to the extent of the face value of shares
taken up by them. Therefore, where a company is limited by shares,
the liability of the members on winding up is limited to the amount
unpaid on their shares.
2) Separate Corporate Personality the company is a separate legal
person in law to its members and Directors, as was established in
Solomon v A. Solomon & Co. Limited.
3) A company has perpetual succession that is continued or
uninterrupted existence until it is legally dissolved. A company being a
separate legal person, is unaffected by the death or other departure of
any member but continues to be in existences irerespective of the
changes in membership.
4) Free & Easy transferability of shares. Subject to the company
Constitution shares are transferable by a shareholder to any other
person. The transfer is easy as compared to the transfer of interest in a
business run by a sole trader or a partnership.
5) Borrowing Capacity a company enjoys better avenues for borrowing
of funds. It can issue debentures , secured as well as unsecured.
6) A company is Managed by Directors, appointed by the members of the
Disadvantages of Private Limited Companies
1) Highly regulated and governed by the Companies Acts regarding Annual
Returns, AGMs, Audits.
2) Confidentiality due to the requirement of disclosure, Company Accounts
and other information is available to be inspected by the public through
the CRO etc.
3) Costs involved in incorporation and compliance with the regulations can
be quite high.
Sole Trader
A sole trader is an individual who sets him or herself up in business. The sole
trader enjoys complete control and privacy over their own business affairs unlike
Companies however, they do not have a separate legal personality and are
therefore liable for any losses of the business. The sole trader also enjoys the
benefit of EU fundamental freedoms including Freedom of Movement for Workers
(within the EU and EEA), the Rights of Establishment and the Freedom to provide
services throughout the EU.
Advantages of Sole Traders include:-

1) Ease of creation of the business, no requirement to Register the business

with CRO. Only required to register with Revenue Commissioners.
2) Control over affairs of the business, no requirement for compliance with
Articles of Association.
3) Whatever profits the business makes, they are the sole traders profits.
4) Practically zero disclosure requirements, other than those concerning
Disadvantages of Sole Trader:1) Unlimited Liability, sole trader can be sued personally for debt and in
2) Complexity of transferring assets, liabilities, rights and obligations etc,
in a company these can be transferred via Shares.
3) Raising finance can be difficult as sole trader cannot create floating
charges and cannot charge their assets.
4) Higher Tax Code for Sole Traders (55% marginal income tax rate)
compared with 12.5% Corporation Tax for Companies.
Partnerships are fundamentally created as a result of an express agreement of
the partners generally contained in a partnership agreement, though it may also
be an express oral agreement. The set of default rules governing partnerships
are found in the Partnership Act, 1890 and include the following provisions:

S.1 defines partnership as a relationship which subsists between person

carrying on a business in common with a view to profit.
S. 5 Every partner is an agent of the firm and the other partners for the
purposes of the business of the partnership.
S. 9 Partners are jointly and severally liable for the debts of the Firm while
S. 10 The Firm and by extension the Partners are liable for the wrongs of a
partner acting in the ordinary course of business of the firm.
S. 24 Subject to agreement to the contrary, all Partners share equally in
the profits and losses of the firm. All partners are entitled to participate in
the management of the business of the Firm.

Advantages of a Partnership include:1) Very little compliance requirements in comparison with a Private Limited
2) Partnership Agreement basically a matter of contract and therefore easily
drafted to suit the requirements of the Partners needs.
3) The Partnership Agreement is a private agreement and not subject to
public scrutiny unlike a private limited company so there is a high degree
of confidentiality.
Disadvantages of a Partnership include:-

1) Unlimited personal liability for the debts and wrongdoings of the

partnership (S.9 of the Partnership Act, 1890) including those debts
incurred before his retirement (S.17 of the Partnership Act, 1890).
2) Subject to agreement between the partners, a partnership is automatically
dissolved by the death or bankruptcy of any partner (S. 33 of the
Partnership Act, 1890). If on death, there is no general right in law to
acquire a deceased partners share.
3) It is not easy to transfer ownership of a Partnership.
4) There are limits on the number of people who can be partners as per S.
376 CA63, there must a minimum of two members and a maximum of
twenty. S. 13 of the CAA90 allows a partnership of accountants or solicitors
to have in excess of twenty members.

2) Lifting the Veil

In what circumstances and for what reasons might the Courts pierce the
Corporate Veil?
In certain cases the courts will find it is permissible to disregard the separate
legal personality of a company and look behind or lift the veil to allow wrongs to
be righted and to hold the company members or directors directly responsible for
the wrongful activities of the company.
There are four main ways in which the Courts will lift the Corporate Veil:1)

Statutory Authority
Misuse of the Corporate Form/Avoidance of Legal Duty
Single Economic Entity

1) Statutory Authority
The Companies Acts allow the Corporate Veil to be lifted under the following
provisions:S. 6 CAA83 The Registrar of Companies issues a Certificate to PLC Companies
and the Company must not commence trading without such Certificate. In the
event that it does so, then the Company and any Officer of the Company may be
found liable to prosecution or to indemnify persons who suffer any loss as a
S.36 CA63 Should the minimum number of members of a Company be reduced
below the number required by Law and the Company continues to carry on its
business for more than six months with such a shortfall then all of the members
who were aware of the deficit will be severally liable for the debts of the
company which incurred after that six month period. The minimum number of
members for private companies is 2 or in the case of a single member private
company it is 1.

S.297 & S.297A CA63 A Director may be found criminally liable for fraudulent
trading or civilly liable for fraudulent or reckless trading.
Other breaches of law (other than those under the Companies Acts) may also
result in the Courts lifting the Veil and finding the Directors or Members
personally liable for the wrongdoing of the company. For example in the High
Court case of John Ronan and Sons v Clean Build Limited (in liquidation) and
Others, Judge Clarke held five former directors and shareholders of a liquidated
company personally liable for the costs of remediating a site in Tallaght on which
significant quantities of construction waste had been allowed to accumulate.
Under the European Communities (Protection of Employees on Transfer of
Undertakings) Regulations 2003 (TUPE), employees are offered protection in
circumstances where an undertaking is sold or transferred to a new owner, the
terms and conditions of the workers of the transferred/sold undertaking are
protected so that they enjoy similar terms and conditions to their employment as
they had before. In other words, the separate legal personality of the transferor
and transferee companies is ignored in order to protect the interests of the
employees concerned.
2) Agency
A company is not per se the agent of its members but such relationship may be
created between the two. The courts have been prepared, in apparent conflict
with Solomons case to infer the existence of a relationship of agency between
companies in the same group.
Subsidiaries are frequently found to be the agent of the parent company. In
Smith, Stone, and Knight v Birmingham Corporation a subsidiary of the plaintiff
company was treated like a department and the Plaintiff was entitled to all of the
profits of the subsidiary without the declaration of a dividend. Atkinson J set out
four criteria for assessing whether a subsidiary was carrying on business as the
agent of the Holding Company:1) Are the profits of the subsidiary treated as profits of the parent?
2) Was the person conducting the business of the subsidiary appointed by
the parent?
3) Was the parent the heads and brains of the trading venture?
4) Did the parent govern the adventure?
The agency principle is relevant and applies in subsidiary holding company
relationships but is not of universal application. However, the principal was
reaffirmed in Fyffes v DCC in which Justice Laffoy held in this instance the
subsidiary was not in fact the agent of the holding company.

3) Misuse of the Corporate Form/Avoidance of Legal Duty

Fraud or fraudulent intentions is another situation in which the corporate veil will
be lifted by the courts. To do otherwise would result in the use of the corporate

personality as a cloak for fraud. The veil will also be lifted by the Court in
situations where the corporate personality is being used to evade an existing
legal obligation.
Re Bugle Press Ltd The courts lifted the Corporate Veil and imposed personal
liability in this case. Here the holders of 90% of the shares in a company wished
to buy out the holder of the remaining 10% but the minority shareholder refused
to sell. The majority shareholders then set up a company to make a takeover bid
for Bugle and under legislation, as this was a takeover bid, the Company could
then compulsorily acquire the minority shareholding. There had of course been
no real takeover of the company and the new company had been formed solely
to with a view to expropriating the minority and the transaction was not
permitted to proceed.

In Jones v Lipman the defendant who had contracted to sell his house to the
plaintiff tried to avoid a claim for specific performance to sell the house. He
conveyed the house to a company which he owned and controlled in an effort to
evade the Plainitiffs enforceable contract for sale. The Court held that the
company in question was the creature of the defendant, a device and a sham, a
mask which he holds before his face in attempt to avoid recognition by the eye
of equity.
In the leading case of Adams v Cape Industries it was decided that the creation
of a corporate structure to allow any potential future liabilities to fall to one
member of the group of companies was legitimate and lawful and not a misuse
of the Corporate Form.
4) Single Economic Entity
Where the justice of the case requires the court will regard the entity as a mere
constituent of a large legal entity or a single economic entity. This is distinct
from implied agency cases for where a number of companies are regarded as
single legal entity only one legal person is recognised, where agency recognises
the existence of two persons.
In DHN Food Distributors Ltd v Tower Hamlet Borough Council, the plaintiff
holding company was held by a Land Compensation Tribunal to only be entitled
to negligible compensation when the land was compulsorily acquired. Lord
Denning held that where the subsidiaries were bound hand and foot to the
parent company they should not be treated as separate entities so as to deprive
them of the compensation which was justly payable.
Concept was also adopted by Costello J in the Irish case of Power Supermarkets
Ltd v Crumlin Investments Ltd and Dunnes Stores (Crumlin) Ltd. In which he held
...a Court may, if the justice of the case so requires, treat two or more related
companies as a single entity so that the business notionally carried on by one
will be regarded as the business of the group or another member of the group if
this conforms to the economic and commercial realities of the situation.

In this case it was held that a related group Company was bound to observe the
restrictive covenant in the Title to premises in a shopping centre even where it
was not party to it.

However concept of single economic entity has not been universally accepted as
was evidenced in Adams v Cape Industries plc, the Court held that it was not
entitled to reject the principles of Salomon v Salomon just because it is required
by justice.
In Rex Pet Foods Ltd v Lamb Bros (Dublin) Ltd, Rex Pet Foods was a subsidiary of
Lamb Bros (Dublin) Limited and the Receiver of Rex tried to argue that business
and assets of both companies should be treated as one, based on the following

The Defendant acquired a 52% shareholding in Rex

Some of the Directors of the defendant became the directors of Rex
The Defendant Group became distributors for the goods of Rex
Separate Accounts were maintained at all times
When Rex had financial problems the Defendant acquired all the
remaining shares in Rex and began to take a management role in Rex.

Costello J refused to disregard the separate legal personalities of a group of

companies under common ownership and control. It was held that the fact that
the Defendant occasionally discharged Rexs creditors was not a sufficient basis
to declare a single legal entity. Neither was the fact that one company accepted
invoices on behalf of another, nor the change in management, nor the conduct of
the board meetings. Even the fact that the Defendant was sole distributor of
Rexs products was deemed insufficient.
In a similar vein, the Supreme Court in Allied Irish Coal Supplies Ltd v Powell
Duffryn International Fuels Ltd held that even where a subsidiary was dependent
on its parent company for control, finance and operations it did not cease to be a
separate legal entity.