This is the 2nd in a three article series highlighting the issues that accountants must consider when incorporating their practice. In this article, Conor Sweeney of OmniPro Corporate Consultants, outlines the main Company Secretarial & Company Law issues that arise in practice. In the 3rd article of this series Michelle Kane of OmniPro Practice Support will deal with the regulatory issues. In the 1st article Derek Andrews of Andrews Tax Consulting discussed the main Taxation issues. If you missed this article in the last publication of AccountingNet.ie you can view it here.
Company Secretarial Issues
The Statutory Audit Directive (S.I. No. 220/2010) removed the restriction on auditors from operating as a body corporate in Section 187 (2)(g) Companies Act 1990.
The main benefits of the new change are the shareholders in an incorporated audit firm are limited to the amount unpaid on their shares in the company and if the audit firm is sued only the company can be liable not shareholders or Directors.
There are a number of issues to consider from a company law and company secretarial perspective prior to incorporating your practice. There are also regulations of each accounting institute and audit regulations that must be complied with and these will have an impact on the drafting of the company formation documentation.
How can OmniPro help?
If you wish to use an existing company or have just recently incorporated your practice, we can assist by reviewing your Memorandum and Articles of Association, providing guidance on the amendments to be made, draft the company secretarial documentation to implement these changes.
OmniPro can also arrange for a business transfer and shareholders’ agreement to be prepared.
Company Secretarial Issues
The main issues when considering incorporating your practice include:-
The company name rules must be complied with when incorporating a practice. Consideration should be given as to the name the practice will operate under. Are there any restrictions on using a particular name? e.g. “Chartered Accountants” cannot be used in a limited company name. Is the practice going to trade under a number of different names? E.g. Joe Bloggs Limited trading as Joe Bloggs & Co. Accountants & Auditors or Bloggs Accountants & Auditors.
The most popular form of company in Ireland is a Private Company Limited by Shares which has the advantage of limited liability. The disadvantage of operating through a limited company is the public disclosure of information. Also, there may be some tax issues which OmniPro Tax & Legal, addresses in their article on Tax Issues on Incorporation of a Practice.
Consideration should be given to operating as an Unlimited Company. The main disadvantage is the shareholders do not have limited liability. However, the depending on the shareholders in the company, the company may obtain the exemption from filing their financial statements at the CRO, thus keeping financial information about the practice private.
A detailed description of what activity the company is going to carry out should be provided. The accounting institutes also require certain provisions to be included in the Memorandum and Articles of Association.
Articles of Association
As with the Memorandum of Association, the Articles should also be tailored to provide for provisions of the accounting institutes and audit regulations. These include regulations on the Directors, shareholders, voting rights, provision of information to the accounting institutes’ and the application of the Accounting Institute’s regulations to the company.
There are a number of considerations in regard to the share capital of the company. Is there to be different classes of shares for non-partners or non-members of accounting institutes? Are shares to be allotted at par or a premium, cash or non-cash consideration? There is a requirement for a percentage of shares to be held by members of an accounting institute.
Directors and Company Secretary
The Directors are the agents of the company and their duties and responsibilities are regulated by the Companies Acts, the Memorandum and Articles of Association and a Shareholders’ Agreement. Consideration should be given about who will act as Directors of the company and how many of the Directors have to be members of an accounting institute or become affiliates.
As owners of the company, the shareholders hold significant power in the company. Consideration should be given as to whom will hold shares in the company and the percentage of the shares to be held by each shareholder. Also, the number of shareholders and percentage of shares that must be held by members of an accounting institute to comply with the institutes’ regulations.
All practitioners will be aware of the importance of having a partnership agreement in place where there is more than one principal in the firm. It is equally important, that when incorporating a practice the existing partners who are now becoming co-shareholders in the new company agree and adopt a comprehensive shareholders agreement.
A shareholders agreement is essentially a contract between the shareholders which deals with day to day management issues, how the business should be run and the relationship between the shareholders.
A shareholders agreement should include provisions detailing how shares are transferred between shareholders and to third parties and how shares may be issued to new shareholders. Mechanisms for the resolution of disputes between the shareholders should also be included.
A shareholders agreement is a private document between the parties but it is also linked to the company’s articles of association which sits alongside the shareholders agreement regulating the affairs of the company.
Alan O’Driscoll from Flynn O’Driscoll Business Lawyers has prepared a detailed article on the provisions to be contained in these agreements which will be published shortly through AccountingNet.ie.
The incorporation of your practice represents a change of auditor. You should resign as auditor of all your clients pursuant to Section 185 Companies Act 1990 and file your letters of resignation with the CRO and also notify IAASA of your resignation pursuant to the Statutory Audit Regulations 2010. You may also be removed as auditor by the company at an EGM and notice of this must also be filed with IAASA. New letters of engagement should be issued from the company to all your clients, both audit & audit exempt.
Auditing Credit Unions or Friendly Societies
If you carry out an audit of a Credit Union, Friendly or Industrial & Provident society, these entities must be audited by a public auditor so you may have to retain your sole trade/partnership.
If you are to trade under a name other than the company name then you must register any trade names with the CRO.
Headed Paper Requirements
Signing Audit Reports
Section 193 of Companies Act 1990 now requires that audit reports shall state the individual name of the auditor and be signed and dated;
The signature on the audit report shall be the individual auditors own name “for and on behalf of” the audit firm. This is applicable for financial years starting on or after 20 May 2010.
Finance of the Company
How the company is to be financed and the payment of Directors should also be considered. Company law rules regarding loans to Directors, financial assistance and stamp duty issues on the transferring assets all need to be considered. A shareholder’s agreement can provide for these issues.
The Company may require an audit if the company is over threshold limits, files late or is part of a group structure. The financial statements will be available to the general public, including your clients in the CRO.
Other points to consider
Who to contact
OmniPro Corporate Consultants,
Unit 3, South Court,
Wexford Road Business Park,
059 9183888 Check out OmniPro TV for the latest Media for the Accountancy Profession
© Copyright 2005 by Accountingnet.ie