Legal Advice: Is setting up a new company to run the farm a good idea?
There are a number of different company types and the most common one is a limited company. Picture: iStock
I recently got advice from my tax advisor that myself and my son should set up a company for our farm as it is more tax efficient. I understand that my son and I will be directors of the company. I am looking for advice as to what our responsibilities would be and what legal obligations I and my son face. John.
Thanks for your query. There are a number of different company types and the most common one is a limited company. This is a company where there are shares and it is owned by shareholders. The company is a separate legal entity and is separate and distinct from the shareholders or the people that run the company.
This is known as the doctrine of the corporate veil which is that directors and shareholders of companies are not personally liable in respect of debts of the company. The most common type of limited company is a private company limited by shares. This is a limited liability company, which means that in the event the company fails or is dissolved, the liability of the shareholders is limited to the amount of any remaining unpaid on the shares held by them.
Company law in Ireland is predominantly governed by the Companies Act 2014.
This is a lengthy and detailed Act. When a company is formed, it is a requirement that the company has to have at least one director and one company secretary. The company secretary can be one of the directors. A director of a company has various fiduciary duties, which are set out in Section 228 of the Companies Act 2014.
These duties include the following:
1. A director must act in good faith in the interests of the company.
2. The director must act honestly and responsibly.
3. Must act in accordance with the company’s constitution.
4. Not to use company property, information or opportunities for their own benefit, unless this is permitted by the company’s constitution.
5. Avoid any conflict between the director’s duty to the company and the director’s other personal interests.
6. Exercise care, skill and diligence which will be exercised by a reasonable person.
There are also general duties which the director owes, including the following:
1. A director must ensure that the company complies with the Companies Act.
2. The director must also take into account the interests of members of the company, including shareholders.
3. The directors are required to acknowledge the existence of their duties by signing a declaration to that effect and making a compliance statement.
4. The directors have to appoint a company secretary who is suitably qualified.
5. They have a duty to disclose any interest in contracts made by the company at a meeting of the directors.
It will be to you and your son’s advantage to set up a company to farm the lands as you could then potentially avail of the corporate veil and would not be potentially personally responsible for any debts or liabilities of the company.
However, it is important to note that there are a number of responsibilities by setting up a company.
If you are setting up a company, it is advisable that you should take advice from an accountant and a solicitor in respect of the legal requirements regarding setting up a company.
Stephen Coppinger, is a solicitor practicing in Walsh & Partners, Solicitors and Commissioners for Oaths, 17, South Mall, Cork.
