Incorporating the Business

The legal format of your business is one of the most important issues to be addressed when starting your own business. The choice is important because it will dictate the way in which the business is conducted, how it can be funded and how you and any other owners can take income from the business. In addition, each has different statutory and taxation obligations which must be complied with, such as an audit.

In essence, in Malta, there are three options: Sole Trader, Partnership or Limited Liability Company and you should take advice from the outset to determine which is most appropriate to your individual circumstances.

Sole traders and partnerships can be established with relatively little formality. Both are essentially an extension of the key individuals and therefore tend only to have access to a limited 'domestic type' funding such as loans, overdrafts and hire purchase or leasing arrangements.

By contrast, limited liability companies have a far broader range of funding options available to them including venture capital, wealthy individuals (business angels) and flotation on the stock market and therefore tend to be the preferred choice for the entrepreneur looking to establish a growing business.

One of the key distinguishing features of a private company is that it constitutes a separate legal entity from its owners. It can enter into contracts in its own right and can raise money from third parties by giving a funder security over its present and future undertakings and assets or by issuing share capital. The company also has perpetual succession so that if the ownership changes, the company can still continue to exist.

The usual way for a company to be legally incorporated is through registration under the Companies' Act. Typically this will involve drawing up a Memorandum of Association and Articles of Association which, together with other documents, will need to be lodged with the Registrar of Companies. Only when the Registrar is satisfied that all matters are in order and has issued a certificate of registration will the company come into existence.

The management of the company is in the hands of the company director or directors. Directors do not necessarily have to be shareholders, but must be appointed by the members to run the company on their behalf. A shareholder cannot make contracts on the company's behalf unless that shareholder is also a director.

Deciding who should be a director can be difficult. Do you want to keep the business in the family or do you want to benefit from external expertise? What conflicts are likely to arise between individual family members and/or outside parties. A similar dilemma can arise with shareholders. Will you be able to retain control of the business?

Of course not all entrepreneurs set up in business from scratch. You might buy an existing business that has already been set up by somebody else. This could be either through a general business sale, Management Buy Out (MBO) or Management Buy In (MBI). Whichever option you choose, Grant Thornton can ensure that you get off to the best possible start.