Have you thought about re-registration under the Companies Act 2014? Should you be talking now to your shareholders and key creditors?
Under the Act, the existing form of a private company limited by shares (an existing private limited company) will be replaced by two different types of private company limited by shares:
- a company limited by shares with flexibility to act similarly to an individual (LTD); and
- a designated activity company with an object clause and stricter corporate governance rules (DAC).
The Act provides for a transition period of eighteen months, which will end on 30 November 2016 (the Transition Period). During the Transition Period, existing private limited companies should decide whether to re-register as a LTD or a DAC. Some of the principal differences between a LTD and a DAC are set out in the table below.
Click here to view table.
Unless required to re-register as a DAC, existing private limited companies have two options.
- Up until the end of the Transition Period, it may re-register as a LTD by a special resolution of its shareholders.
75% approval is required.
- Up until 31 August 2016, it may re-register as a DAC by an ordinary resolution of its shareholders. A simple
majority approval is required.
Obligation to Register as DAC
An existing private limited company must re-register as a DAC before 31 August 2016 if:
- It has listed debt securities; and/or
- It is notified by shareholders, who have more than 25% of total voting rights, that they require it to register as a DAC.
Where there is a requirement to register as a DAC, a directors' resolution must be passed for that purpose and included as part of the registration application.
Status during Transition Period
During the Transition Period, an existing private limited company will be treated as a DAC, even though its company name may end in "Limited" or "LTD", until it re-registers as a DAC or LTD. If it does not re-register during the Transition Period, it will become a LTD on 1 December 2016, which is when the Transition Period expires.
The decision to re-register as a LTD or a DAC should be made with reference to the existing private limited company's requirements and those of its shareholders and creditors. For example, it must register as a DAC if it has debt securities listed on a stock exchange or requires the flexibility to list debt securities. Creditors or shareholders may require it to be a DAC so that it has an objects clause limiting the directors' authority to transact business to that acceptable to the creditors or shareholders.
We recommend that directors of existing private limited companies should consult with the company's shareholders on the shareholders’ requirements. It may also be prudent and/or necessary to consult with key creditors, particularly banks and debenture holders.