Private Companies Limited by Shares incorporated prior to 1 June 2015
Under the Act, all existing private companies limited by shares have the option of converting to one of the new company types, being a private company limited by shares (“LTD”) or a Designated Activity Company (”DAC”) during a transition period which ends on 30 November 2016.
Any such existing company that has not applied to the Companies Registration Office to be converted to either a DAC or an LTD will be automatically converted to an LTD by virtue of the Act on 1 December 2016. Companies wishing to convert to a DAC must convert before 31 August 2016.
Upon the end of transition period the Companies Registration Office (“CRO”) will prescribe a new constitution containing the provisions of the company’s existing memorandum and articles of association minus the objects clause and any clauses prohibiting the alteration of its memorandum and articles of association. The CRO will then issue a new certificate of incorporation to the company.
It is important to note that until such time as an existing private company is re-registered as an LTD, it will be treated as a DAC in accordance with its existing memorandum and articles of association, save to the extent that its existing memorandum and articles of association are in conflict with the provisions of Part 16 of the Act relating to the DACs, in which case Part 16 of the Act will prevail. This will undoubtedly lead to uncertainty and confusion regarding the regulations which apply to the company and which ones have been overridden.
Furthermore, certain companies are specifically envisaged as being DACs, e.g. management companies or companies which are incorporated for a specific purpose for which the shareholders wish the capacity of the company to be clearly defined. Certain companies are obliged to convert to a DAC, e.g. credit institutions or insurance companies. There may also be other legal issues impacting on the conversion choice (including banking arrangements, tax planning considerations or statutory restrictions on the type of companies certain shareholders (such as institutes of technology) can participate in).
It should be noted that there is provision for the shareholders or certain creditors to object to the conversion of an existing company to a LTD and petition the High Court for an order directing the company to re-register as a DAC. That being the case, it is prudent to take an active approach and to identify whether any shareholders need to be consulted with in relation to the conversion in advance. Such advance notification is also advisable from a relationship management perspective.
It should also be noted that there is a positive obligation under the Act on company directors to procure an active conversion of the company and a failure to do so will put directors in breach of their duties to comply with the Act.
For a comparative summary of the key features of LTDs and DACs please see “LTD versus DAC”.
Private Companies Limited by Guarantee and Unlimited Companies incorporated prior to 1 June 2015
Under the Act, existing companies limited by guarantee and existing unlimited companies do not change their company type.
However, it is important to note that the Act requires that the specific company type must be included as part of the company name. In case of companies limited by guarantee, such companies will need to include the words “Company Limited by Guarantee” or “C.L.G.” or their Irish language equivalent in place of their current suffix (unless exempted). In case of unlimited companies, such companies will need to include the words “Unlimited Company” or “U.L.C.” or their Irish language equivalent.
The change of name will have a significant impact in practice as the company stationery and the company seal need to bear the new name of the company and must be changed accordingly.
In addition, the existing memorandum and articles of association will need to be reviewed and updated as they contain provisions of and references to the Companies Acts 1963-2013 which will be outdated at the end of the transition period (30 November 2016). On the expiry of the transition period, the existing memorandum and articles of association apply save to the extent that they are in conflict with the provisions the Act in which case the Act will prevail. This will undoubtedly lead to uncertainty and confusion regarding the regulations which apply to the company and which ones have been overridden.
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We take the view that an active approach is the best from a good governance perspective.