The Companies Act 2014 is expected to come into effect in June of this year and will introduce significant reforms to Company Law in Ireland.
What will the Companies Act 2014 mean for your business and what are its practical effects?
Here are the answers to just a few of the more frequently asked questions posed by our clients about the Companies Act (The Act).
1. What steps do I need to take to prepare my Company for the changes under the Companies Act?
At this stage you should be reviewing your existing company or group structure to identify which companies are public, private or unlimited, because different rules will apply to these once the legislation takes effect. In particular, you should consider whether a private company should become a DAC or LTD, referred to below. Additionally, it is an opportunity for you to do some housekeeping and in this regard you should identify what companies are now dormant and will no longer be required as there may be a possibility of winding some of them up.
2. What are the new Company types for Private Companies?
The Act provides for two new forms of Private Limited Company.
- A Private Company Limited by shares ("LTD"). The LTD will be a new form of simplified private company limited by shares and will have a single constitutional document.
- A Designated Activity Company ("DAC"). The DAC will more closely resemble the existing form of private limited company and will continue to have a Memorandum and Articles of Association.
3. Should I convert to a LTD or DAC?
The decision to register as a LTD or DAC will depend on what is best suited for your company and the purpose for which it is incorporated. Some companies such as banks, insurers and companies with debt securities listed on an exchange, which wish to continue as private limited companies must convert to a DAC. In most other cases it is a decision as to which type will best suit your needs. We anticipate that most companies will become LTDs. As these are types of companies that enjoy the benefit of most of the innovations intended to simplify their administration e.g. the ability to have a single director.
4. What is the transition period?
The transition period is an eighteen month period that applies to private companies that exist at the date the Act comes into force. During this period companies will need to decide whether to convert to a LTD or DAC or some other type of company. The decision should be taken no later than three months before the end of the transition period. If a private limited company is not converted to a type of company recognised under the Act the company will automatically and by default become a LTD which may not suit the requirements of that company. Therefore we recommend that you take positive steps to consider your options and to make the decision your own.
5. How will the Companies Act impact on annual compliance requirements?
The Act, in the main, restates the existing requirements in relation to filing an annual return and audited accounts. However a new imposition for certain companies under the Act will be the requirement to prepare a Directors Compliance Statement. This obligation will apply to a PLC (other than an investment company) and a LTD, a DAC and a Company Limited by Guarantee (CLG) which meet certain Balance Sheet and turnover thresholds. Unlimited Companies (ULC) are not subject to this requirement. The statement must set out the company's policies on its compliance and obligations under the Act and under tax Laws.
6. Will the Companies Act change any of the duties and obligations of Directors?
For the first time in Irish law the Act sets out in statue the eight principle fiduciary duties of directors and so codifyies the existing common law duties of directors. A director will continue to have statutory duties and responsibilities and these will not be affected by the Act. The duties will apply to all directors including shadow directors.
7. Does the Companies Act change any of the disclosure requirements for Directors?
The Act contains a new exemption for directors regarding their interest in shares or debentures in a company. A director is not now obliged to disclose the interests of that director or of a connected person, where those interests in aggregate do not represent more than 1% in nominal value of the company's issued share capital. This should substantially reduce the disclosure obligations for directors.
8. Does the Companies Act impact on our approach to holding Board or Shareholder Meetings?
The Act does not envisage any substantial changes to the law regarding Board Meetings. However multi-member private limited companies will be able to dispense with the holding of an AGM, this is an option that's currently only available to single member companies. In addition, it will also be possible for shareholders to pass a majority written resolution, as well as the unanimous written resolution currently required, subject to certain conditions. However it should be noted that the effectiveness of majority, written Resolutions are subject to certain time delays (referred to below) while the unanimous Resolution will continue to be immediately effective.
9. Can I still avail of an audit exemption?
Audit exemptions may still be availed of by a LTD or DAC where they meet certain criteria. Certain Unlimited Companies will also be able to avail of such an exemption. Where a company is part of a group they can also avail of the exemption provided the group meets the "small group" criteria laid down in the Act. The Act also introduces the concept of a dormant company to which the audit exemption provisions will also apply.
10. How does the new Companies Act help in making matters more efficient for my company?
There are many ways in which the Act makes life easier for the administration of private limited companies. To list them all here is beyond the scope of this article but a good example is the introduction of the ability to pass written resolutions by majority. The majority resolution will be valid and effective where it is signed by a member or members representing 50% (ordinary) and 75% (special) of the total voting rights and will take effect seven and twenty-one days respectively after the last member has signed. The text of the resolution must be circulated to all the members.