Companies Act 2014

 

The Companies Bill 2012 was signed by the President on 23rd December 2014 and has been enacted as the Companies Act 2014.  The new Act will commence on the 1st June 2015.  It is, thus, vital that company directors and secretaries are prepared for the implications which the Act will have for them and their businesses.

At this stage in the process it is advisable for existing companies to examine their current corporate structure, review future plans and generally consider the practical effect of the commencement of the Companies Act 2014 which is fast approaching.

 

NEW COMPANY TYPES

It is important for directors to be aware and have a clear understanding of the new company types which will be introduced by the Act in order to make an informed and timely decision as to which of the new company types would be most appropriate.

The principal changes under the Act relate to the private company limited by shares, which accounts for the majority of companies registered in Ireland.  From 1st June 2015 there will be two types of private company, which will effectively replace the existing private limited company.  These will be:

  1. a private company limited by shares (“LTD”); and

  2. a designated activity company (“DAC”).

 

MAIN FEATURES OF THE "LTD" AND "DAC" COMPANY

COMPANY LIMITED BY SHARES ("LTD")

DESIGNATED ACTIVITY COMPANY ("DAC")

Must end in the suffix "Limited" or "LTD" Must end in the suffix "Designated Activity Company" or "DAC"

Single document constitution

Two document constitution similar to existing M&A
No object clause - full and unlimited capacity to act Capacity limited to the objects clause in the Memorandum
Minimum of 1 director

Minimum of 2 directors

Must have a company secretary who cannot be the sole director Company secretary may be one of the directors
May dispense with the holding of a physical AGM Cannot dispense with the holding of a physical AGM where there is more than one member
Need not have an authorised share capital Must have an authorised share capital

Cannot list debts or securities

May list debts and securities
May utilise the majority written resolution procedure DAC may utilise majority written resolution procedure, unless its constitution (M&A) provides otherwise

Under the Act, all existing private companies will be required to convert either to an LTD or DAC.  It is expected that the majority of private companies limited by shares will convert to the new LTD company type. 

The new LTD company type will have a simplified one document constitution that will contain no objects clause, can have a minimum of one director (although they must have a separate company secretary), can dispense with the holding of a physical AGM and no change of registered company name will be required as the name will end with “Limited” or “Teoranta”.

The DAC, on the other hand, which is very similar to the existing private limited company will have a two part constitution document very similar to a Memorandum & Articles of Association with an objects clause restricting the company’s legal capacity, must have at least two directors, can only dispense of holding a physical AGM where there is a sole shareholder and will require a change of company name as the registered company name will end with “Designated Activity Company” or “DAC”.

Converting to the LTD company type, however, is not an option for a select number of companies which must register as a DAC.  For example, banks, credit institutions and insurance companies as well as those with a debt listing cannot convert to LTDs. Also, companies that wish to have an objects clause or are incorporated for a specific purpose are best suited to the DAC company type.  Further, companies which have heavily negotiated and complex Articles of Association may wish to become a DAC in order to avoid commencing further prolonged negotiations on a new company constitution.

 

TRANSITION PERIOD CONVERSION PROCEDURES

On commencement of the Act on the 1st June 2015, all private limited companies will be treated as DACs for a transition period of 18 months.  During this transition period existing private limited companies will have to form a decision as to which company type they wish to convert to.

It is anticipated that the majority of existing private limited companies will opt to convert to the new LTD company type.  The procedure for conversion involves reviewing the current Articles of Association to decide which Regulations of Table A actually apply to the company, which regulations do not apply and which were drafted specifically for the company.  This will then need to be compared against mandatory and optional provisions of the Companies Act 2014.  The content of the new constitution will then be decided on and approved by the shareholders by way of a special resolution.  The resolution will be filed with Form N1 in the Companies Registration Office who will then issue a new Certificate of Incorporation.

The procedure for conversion to a DAC involves amending the existing Memorandum & Articles of Association of a company by inserting a clause to state the company is a DAC, registered under Part 16 of the Companies Act, 2014.  Changing the company name from “Limited” to “Designated Activity Company” and adopting by way of special resolution.  The decision to convert to a DAC must then be passed by the shareholders by way of an ordinary resolution no later than 3 months before the end of the transition period.  The ordinary resolution will be filed with Form N2 in the Companies Registration Office who will then issue a new Certificate of Incorporation.

It is important to note that were the Directors receive notice from 25%+ of the shareholders of their desire to convert to a DAC, or they receive a court order, a resolution of the Directors will suffice for the conversion to go ahead.

 

WAIT UNTIL THE END OF THE TRANSITION PERIOD?

A company that fails to make an election to convert to either of the new private limited company types after 18 months of the commencement of the Act will automatically be re-registered as the LTD company type by default and will be issued a new Certificate of Incorporation. 

These companies will be deemed to have a one document constitution comprising of its existing Memorandum & Articles of Association excluding the objects clause and any clause prohibiting alteration to its Memorandum & Articles of Association.  Further, any article that is in contravention of the provisions of the new Act will automatically be void.

Doing nothing during the 18 month transition period is advised against as it may result in a series of damaging repercussions such as;

  • Shareholders and certain creditors could submit a claim to the court on the grounds that they have been prejudiced by the directors failure to act;

  • The demonstration of poor corporate governance could negatively impacts on dealings with banks, potential investors, Enterprise boards and any other third parties;

  • The articles will have to be reviewed on each occasion a transaction is anticipated to make sure that an article to be relied on has not been automatically voided which will stall decision making.

Accordingly, it is in a company’s best interest to make an informed decision as to which company type they should convert to before the end of the transition period and to ensure the appropriate course of action to convert is taken.

 

OTHER COMPANY TYPES

Other company types, such as PLCs, unlimited companies and companies limited by guarantee do not need to convert under the new Act, however, there will be some notable changes to the rules applicable to them.

Unlimited Companies (UCs)
  • • An unlimited company will continue to have a Memorandum & Articles of Association
  • • It will still have an objects clause
  • • It may opt to have just one member (currently it must have at least two members)
  • • Name change to include words “Unlimited Company” or “UC” at the end of its name
  • • It must have two directors
Public Limited Companies (PLCs)
  • • The only company type permitted to have shares listed on the stock exchange
  • • It will continue to have a Memorandum & Articles of Association
  • • It will continue to have a main objects clause
  • • It may opt to have just one member (currently must have at least seven members)
  • • No name change
  • • It must have two directors
Guarantee Companies (CLGs)
  • • This will be the most common form of entity used by charities, sports and social clubs and   management companies
  • • It will continue to have a Memorandum & Articles of Association with a main objects clause
  • • It may opt to have just one member (currently must have at least seven members)
  • • It will be able to avail of the audit exemption (not currently available), although, any one member can object and can effectively force the company to carry out an audit
  • • Name changes to include words “Company Limited by Guarantee” or “CLG” at the end of its name
  • • It must have two directors
  • • Important to note that guarantee companies that have a share capital will be DACs under the new Act not CLGs.

 

Note

Where a company name changes under the Companies Act 2014 the following must be considered by the directors;

  • Company stationary will need to be altered to reflect name change;
  • The website and signage page updated;
  • A new Company Seal will need to be obtained.