The Companies Act 2014 (2014 Act) was signed into law by the President of Ireland on 23rd December 2014 and is expected to be enacted in June 2015. Once enacted, the 2014 Act will replace The Companies Acts 1963 to 2013.
The 2014 Act was first introduced in 2012 with the purpose of reforming company legislation within Ireland. This will be achieved by replacing the various Acts from 1963 to 2013 with one single piece of legislation, which is published in two volumes and incorporates 25 Parts.
There are a number of important factors for both company directors and company members/shareholders to consider before the 2014 Act is enacted and we have outlined below some of the key factors which you may find useful during your preparations.
1. New Company Structures Introduced by The Companies Act 2014
Under the 2014 Act there will be a number of new company structures. As outlined above, the 2014 Act will comprise of 25 Parts divided over two volumes and each separate entity will be governed by specific Parts of the 2014 Act. Such a structure is expected to make it easier to identify which Parts of the Act are relevant to each company structure, unlike the current legislation where matters relating to each company type are spread across the various acts. The following is a summary of the new company structures to be introduced, along with the Parts of the 2014 Act applicable to each:
|New Company Structure||Description||Applicable Part of The Companies Act 2014|
|LTD||New model private company limited by shares||1 to 15|
|DAC||Designated Activity Company||16|
|PLC||Public Limited Company||17|
|CLG||Company Limited by Guarantee||18|
Parts 20 to 25 of the 2014 Act cover areas such as Re-Registration, Unregistered Companies and Joint Stock Companies, Investment Companies and other matters.
While there are a number of options available to Irish companies under the 2014 Act, it is expected that most companies will adopt the LTD structure, which will allow the company to avail of the new company law procedures, as outlined in Parts 1 to 15 of the 2014 Act. A summary of the advantages of an LTD structure were covered in our recent blog, 5 Highlights of The Companies Bill 2012 for SME’s. Such advantages include:
- The right to dispense with the holding of a physical Annual General Meeting
- LTD companies will only require one director
- Ultra Vires (acting beyond the scope of powers granted by the company’s objectives clause) will no longer exist.
While LTD’s now only require one director, the company will still require a company secretary. The 2014 Act forbids the sole director from also acting as the company secretary, however this restriction can be overcome through the use of a secretarial secretarial provider or your accountant who could act as secretary to your company.
There will be a transition period of 18 months from the date of enactment of the 2014 Act. During this time companies should decide on the structure which they will adopt. Some companies will “opt-in” and adopt the LTD structure and others will “opt-out” and re-register as a DAC or other company type.
2. Converting your Existing Company
In order for a company to “opt-in” and adopt the LTD structure the following steps will be required:
- The directors of the company will draft a one-document constitution which will be based on the existing memorandum and articles of association, but will exclude its objects clause and any non-compulsory clauses which prevent its alteration.
- The directors will present the constitution to the members of the company who will pass a special resolution, thereby adopting the constitution in place of the existing memorandum and articles of association.
- A copy of the new constitution will be submitted to the Companies Registration Office (CRO), who will then issue a new certificate of incorporation to the company with Parts 1 to 15 of The Companies Act 2014 then applying to the company.
It must be noted that while it may be the intention of the directors to “opt-in”, a member or number of members owning 25% or more of the voting rights of the company may serve notice, in writing, on the company, no later than 3 months before the end of the transition period, requiring it to re-register as a DAC.
If neither the directors or members of the company take action before the end of the 18 month transition period, the company will default to an LTD and its existing memorandum and articles of association, again excluding the objects and non-compulsory clauses preventing alteration, will be deemed to constitute the new one-document constitution for that company.
Making the transition to an LTD company offers an opportunity for private limited companies to pro-actively create a new constitution to meet their company’s specific requirements. It is important that both company directors and its members/shareholders take action before the end of the transition period, as if a new constitution is not drafted then a constitution in the form provided by the 2014 Act will be forced upon the company. Such default or deemed constitutions are best avoided.
3. Requirements of the New Constitution
As outlined above, existing private companies can convert to an LTD by passing a special resolution, thereby adopting a new constitution. Section 19 of the 2014 Act outlines the following items which are required to be contained in the company’s constitution:
- The company name
- A statement that the company is a private company limited by shares registered under Part 2 of The Companies Act 2014
- Details in relation to the share capital of the company
- Details in relation to the number of shares taken by each subscriber to the constitution
- Any supplemental regulations which the company is adopting
It is important for companies to review their articles of association as drafting a new constitution is an opportunity for companies to ensure it includes tailored provisions applicable to their company.
4. “Opting-Out” of the new regime
While it is more attractive for most private limited companies to “opt-in” to the new regime, some companies, such as joint ventures, may choose to “opt-out”. The main reason for joint ventures to “opt-out” lies in the bespoke articles of association which joint ventures have agreed to and which include rights of each party which were negotiated when the joint venture was formed.
Unlike an LTD, the constitution of a DAC is not in the specified format and can contain certain objects, thereby allowing for the various negotiated positions of both parties in a joint venture to be preserved.
If companies choose to “opt-out” of the new regime, it is important that they pass a special resolution, before the end of the transition period, outlining this position. If such action is not taken then the company will default to an LTD, with the default constitution and Parts 1 to 15 of the act applying to the company.
Making the Change
There are a number of factors for both company directors and members to consider before the enactment of The Companies Act 2014. For those companies looking to “opt-in”, early adoption will ensure that their company can tailor their new constitution to suit their specific purpose and that the company can avail of the new company law procedures as set out in Parts 1 to 15 of the 2014 Act.
If you would like assistance with any of the above or have further queries in relation to The Companies Act 2014 please do not hesitate to contact a member of our team.