Companies Act 2014 - Time to Consider Your Options
Written by 22nd May 2015on
The Companies Act 2014 came into force on the 1 June 2015. The Act affects all companies incorporated under Irish law, in particular private limited companies.
Specifically, private limited companies as we know them will be phased out and therefore you will have a decision to make as to whether:
(i) to convert to the new simplified type of private company - Company Limited by Shares (LTD);
(ii) to convert to the new company most like existing private limited companies - Designated Activity Company (DAC);
(iii) to convert to another type of company.
It is our recommendation that this decision should be made as soon as possible following the commencement of the Act.
Differences between a LTD and a DAC
|May have just one director and a separate secretary.||Must have at least two directors. Once can also act as a secretary.|
|Full and unlimited capacity - no objects clause required.||Must have an objects clause.|
|Will have a single document constitution.||Will have a two part document constitution.|
|The name must end in "limited", "ltd" or the Irish equivalent.||The name must end in "designated activity company", "DAC" or the Irish equivalent.|
|May dispense with holding and AGM.||Cannot dispense with holding an AGM unless a single member company.|
|May decide not to have an authorised share capital.||Must have an authorised share capital.|
|May not list or have securities admitted to trading.||Will be able to list or have admitted to trading certain securities.|
Contrary to the current position, the Act will for the first time establish two types of private limited company under Irish Law: the LTD and the DAC. In order to assist you in coming to this decision, above is a table identifying some of the key differences between a LTD and a DAC.
Companies will have eighteen months from 1 June 2015 (until 31 December 2016) to effect a change to either a LTD or a DAC. In the case of a DAC, members must begin the process no later than three months prior to the expiry of the transition period (i.e. 1 September 2016). So the conversion can be done on a timely basis, we would strongly recommend that you give this matter your immediate consideration.
So what do I do?
You should now give consideration as to the type of company, private or otherwise, that best suits your needs. Are the more simplified administrative requirements of a LTD desirable or are the provisions relating to a DAC (being most comparable to current private limited companies) preferable?
We also suggest that this process is an opportunity for you to look at the current structures and arrangements that are in place the see if they need to be updated and renewed. For example larger organisations with many group companies may undertake a housekeeping exercise with a view to simplifying their structures in order to assist with the transition. Less complicated companies should consider whether the more simplified corporate governance regime would best suit the members and directors and future business needs.
While some companies will be obliged to convert to a DAC, we would anticipate that for most the benefit of the simplified corporate governance requirements for LTDs will be appealing with the result that most private companies will convert to LTDs.
Once you have made the choice of what type of company you want, we can provide advice and guidance to ensure your constitution meets the requirements of your new company model.
What if I do nothing?
If a company fails to make a decision to re-register as a LTD or DAC by 31 December 2016 an existing private company will be deemed to be a LTD with a one document constitution consisting of the existing provisions of its Memorandum and Articles (excluding its objects clause and any clause prohibiting alteration of the M&A).
In addition, the provisions of the Articles derived from Table A of the Companies Act 1963 will continue to apply unless they are inconsistent with any mandatory provisions contained in the Act. This may have consequences in that if the existing Articles contain specific provisions which have been negotiated, the company may end up with a constitution which does not reflect the arrangements which have been negotiated between the shareholders.
Furthermore, by doing nothing, the directors could be in breach of their duty to ensure that they have complied with the Act and there may be a challenge by shareholders or creditors who could seek remedies, including payment of compensation.
How Can We Help?
LK Shields can assist you in converting your company to a LTD or a DAC or some other type of company and we can advise you on the options for, and your obligations, concerning conversion. We have an experienced team of chartered secretaries with in depth knowledge of the implications of conversion and would welcome hearing from you at your earliest opportunity.
If you would like more information, please call me at +353 1 6371529 or email firstname.lastname@example.org