The Companies Bill 2012 is one of the longest pieces of legislation ever to come before the Oireachtas and is set to revolutionise company law in Ireland. Ruairí Mulrean and Lisa McEllin examine some of the highlights of this landmark Bill.
In December of last year, the new Companies Bill 2012 was published. The Bill consolidates existing company legislation into a single piece of legislation and incorporates reforms aimed at making operating a business in Ireland more straightforward.
It is expected that the Bill will take some time to pass through the Oireachtas, meaning that it is likely to be 2014 at the earliest before it takes effect. On that basis, the changes proposed under the Bill are unlikely at this time to be a pressing concern for companies. However, when the Bill does take effect, those involved in private limited companies will have decisions to make about the form those companies will take going forward. These decisions need to be considered and made in advance to ensure a smooth transition from the existing to the new rules.
Under the Bill, there will be two types of private limited company in place of the current private limited company incorporated under existing legislation. These companies are the private company limited by shares (CLS) and the designated activity company (DAC). Of the two, a DAC more closely resembles existing private limited companies and may continue to be used for companies such as those with existing heavily-negotiated constitutional documents, for example, joint venture companies and special purpose vehicles. However, it is anticipated that the CLS will be the most common form of private limited company in Ireland into the future, given the fact that a CLS is an easier company to operate and manage.
The Bill provides for an eighteen-month transition period during which existing private limited companies can choose to take one of the following options:
- Choose to opt-out. A company can pass an ordinary resolution up to three months before the end of the transition period resolving to become a DAC.
- Choose to opt-in. The members or directors of a company can choose that a company becomes a CLS before the end of the transition period.
- Choose to do nothing. Following the eighteen-month transition period, any existing private limited company that has not taken active steps to re-register as either a DAC or a CLS will be automatically deemed to have become a CLS. During the transition period, existing private limited companies that have not re-registered will be subject to the law applicable to DACs.
Notable Changes Under the Bill
- Single director. Under the Bill, a CLS may operate with only one director (the requirement for all other company types will still be a minimum of two directors).
- Skilled secretary. The Bill for the first time provides that a company secretary must have the skills necessary to discharge their statutory and other legal duties. The obligation is placed on the directors to ensure this is the case.
- Single document constitution. Rather than the current requirement to have a memorandum and articles of association, under the Bill a newly-incorporated CLS will have a simplified single document constitution. This will effectively do away with the requirement to have a memorandum of association with lengthy objects clauses. The Bill incorporates default governance provisions, dealing with matters such as procedures for meetings of directors and members, which will apply unless specifically varied by the company. This means that such provisions will not need to be included in the company’s constitution, resulting in a further simplification of the document.
- Annual general meeting. The Bill allows a CLS to avail of an exemption from the requirement to hold an annual general meeting with the consent, in the required form, of all the shareholders.
- Directors’ duties. In the Bill, the duties of the directors of a company have been codified in legislation for the first time, providing directors with greater clarity as to the standards expected of them.
- Majority written resolution. For the first time, an ordinary or special written resolution may be passed by shareholders holding the requisite majority of voting shares (In the case of a written resolution only 75% of the voting shares and in the case of an ordinary resolution 50% of the voting shares). This dispenses with the somewhat onerous requirement for written resolutions to be passed with unanimous approval.
The Bill will benefit companies by consolidating existing legislation and effecting reforms intended to increase efficiency, making it easier for companies, and those involved in the running of companies, to know, understand and comply with their legal obligations. Once the Bill is enacted, it will be important for companies to understand how the changed law impacts on them.