The New Companies Act

 

Since 1963 legislation governing Irish company law has consisted of numerous Acts, statutory instruments and amendments which have left Irish companies with an incoherent and somewhat intimidating body of law contained in the Companies Acts, 1963 – 2013. The Companies Act 2014 (the “2014 Act”), which was signed into law by the President on 23 December 2014, replaces all previous legislation. The 2014 Act, which it is expected to become operative in June 2014, not only consolidates all Companies Acts from 1963 to 2013 but it also overhauls the existing legislation and introduces a number of new and innovative concepts including two new company types.

 

“Conversion Process”

 

It is seldom that companies have had to take a proactive step on the passing of new company legislation but the 2014 Act sets out a “conversion” process for all existing private companies limited by shares into one of two new company types. Existing companies will have to determine whether they shall convert into an LTD (private company limited by shares) or a DAC (designated activity company). It is estimated that 85% of all companies registered with the Companies Registration Office are private companies limited by shares and the vast majority of existing Irish companies will, therefore, be affected by these conversion requirements.

 

LTD – Private Company Limited by Shares

 

It is likely that the majority of existing companies will choose to register as an LTD. It is important to note that an existing private company limited by shares does not automatically convert to an LTD and cannot act as an LTD until it has taken the step to convert. An LTD will no longer be constrained by the objects clause contained in its Memorandum of Association and is free to undertake any activity as it now has the same unlimited legal capacity as an individual. An LTD will be governed by a constitution document which replaces its Memorandum and Articles of Association.

 

The principal features of an LTD are as follows:

 

  • it has limited liability and has a share capital;
  • it can have a single director (but will need to have a separate company secretary);
  • it can have a maximum 149 members;
  • it has a constitution document which replaces the memorandum and articles of association;
  • it can adopt written procedures instead of holding an AGM;
  • it can claim eligibility for audit exemption; and
  • it can pass majority written resolutions (special and ordinary).

 

Upon conversion to an LTD, an existing company’s name will not change and it can continue to us “Limited” or “Ltd”.

 

DAC – Designated Activity Company

 

A DAC is much more akin to the existing private company that we are all familiar with. A DAC retains the existing Memorandum and Articles of Association (which are now contained in a constitution document) and significantly retains its objects clause. As its name suggests, a DAC will have a designated activity or activities which shall be enumerated in its objects clause and a DAC shall not have the power to act outside its designated activity or activities without amending its objects clause. The principal features of a DAC are as follows:

 

  • it has limited liability and has a share capital (or is limited by guarantee);
  • it has an objects clause;
  • it must have a minimum of two directors;
  • it has a constitution document which contains its memorandum and articles of association;
  • it cannot dispense with holding an AGM (unless it only has one member);
  • it can claim eligibility for audit exemption; and
  • it can pass majority written resolutions (special and ordinary).

 

After conversion a DAC’s name is required to end in “designated activity company” or “DAC” (or the Irish equivalent). It is envisaged that the DAC type of company will be mostly utilised by banks and insurance companies.

 

Conversion

 

The 2014 Act sets down a transition period for existing companies to convert into an LTD or a DAC. From the commencement date of the 2014 Act, a company only has 15 months to elect or become a DAC and 18 months to convert to an LTD. During the transition period an existing company will effectively be deemed to be a DAC unless it converts to an LTD.

 

Conversion to an LTD

 

A company may convert to an LTD in three ways:

 

  1. by passing a special resolution and registering a new constitution with the Companies Registration Office; or

 

  1. the directors of a company may submit a new constitution to the Companies Registration Office as long as:
    1. the directors have sent a copy of the constitution to all members of the company; and
    2. the constitution does not alter the rights and obligations of the existing members of the company; or

 

  1. if the company fails to convert by the end of the transition period, the company shall be deemed to be an LTD and its existing memorandum (except for the objects clause) and articles of association shall be the constitution of the LTD. However, for various reasons this default option is very unsatisfactory, including that it may lead to unintentional new rules applying to the directors and shareholders in conducting the business of the company.

 

Conversion to a DAC

 

Up to three months prior to the end of the transition period a company may convert to a DAC by:

 

  1. passing an ordinary resolution and filing a new constitution with the Companies Registration Office; or

 

  1. a member or members holding more than 25% of the voting rights

can serve a notice in writing on the company requiring it to re-register as a DAC.

 

If a company has failed to convert after the transition period has expired, one or more of its members holding not less than 15% of its issued share capital, or one or more creditors holding not less than 15% of its debentures entitling them to object to alterations in its objects clause may apply to the High Court for an order directing the company to register as a DAC.

 

The 2014 Act introduces major reforms to company law. This article briefly considers one of the more significant changes introduced but there are numerous others which affect all Irish companies. Please contact Adrian Wall or Kieran Regan by telephone (+35321 489 6311) or email (info@mcw.ie) for definitive advices.

© McCullagh Wall Solicitors Rathmore House, South Douglas rd, Cork