The Companies Bill 2012, which will introduce significant reforms in company law in Ireland, is likely to be enacted in November 2014 and come into effect on 1 June 2015.
This Briefing is based on the Bill as passed at Report Stage and Final Stage in Seanad Éireann on 30 September 2014. Although further changes may be made to the Bill in the Final Stage in the Dáil, no further substantive change is expected.
Following enactment (into what will be the Companies Act 2014), an existing private company limited by shares will have to decide, within a transition period of 18 months from commencement of the Act, whether to opt in to the new regime for private companies limited by shares (CLS) or opt out by becoming a designated
activity company (DAC) or some other type of company. The CLS is the new form of the existing private limited company.
The CLS will be a private limited company.
The constitution of a CLS will comprise one document which will replace the need for a memorandum of association and articles of association.
The CLS will not have an objects clause and it will have full unlimited capacity to carry on any legal business, subject to any restrictions in other legislation.
The name of a CLS must end in “Limited” or “Ltd”, or the Irish language equivalent, and it may not apply for an exemption from this requirement.
The CLS may have a single director but it must have a separate company secretary.
The CLS may have from 1 to 149 members.
The CLS will have the right to dispense with holding an AGM.
The law relating to DACs will apply to all existing private companies limited by shares until they re-register as a CLS or another company type or migrate to a CLS at the end of the transition period.
Companies Bill 2012 The Company
Limited by Shares
This Briefing may be read in conjunction with our client briefings on DACs and Migration of Existing Private Limited Companies.
Parts 1 to 14 of the Bill govern the CLS exclusively. The Bill is based on the CLS being the paradigm type of company, with additional parts of the Bill adapting the CLS-related parts and applying them to the relevant company type. The Bill provides that, for 18 months after the by-then- enacted Act comes into force, a then- existing company may migrate into any type of company that the Bill recognises, while retaining the most of the provisions of its then-existing memorandum and articles of association (although a CLS may not have any objects clause). In the event that any company does not proactively migrate during this 18-month period, a default transition will occur (eg a then- existing private company limited by shares will become a CLS).
In any event, procedures in the Bill will accommodate the conversion of a company from any type to any type, with a default constitution being applied unless the company adopts a tailored document.
A CLS will have a single constitutional document, effectively amalgamating the memorandum of association and the articles of association of a current private limited company. There will no longer be a requirement for detailed
articles of association as the majority of the provisions commonly provided for in articles of association on the internal administration and governance of a company will be contained in the Bill (ie
as legislation rather than internal statutes of the company) and will apply to every private company (in some cases, unless its constitution provides otherwise).
Abolition of Table A of the Current Companies Acts
Provisions commonly provided for in the articles of association of a company are now contained in the Bill so that the
familiar default rules in Table A have been abolished. In their place, default rules are set out in the body of the Bill which will apply to every company unless explicitly stated otherwise in its constitution. These principally incorporate the procedures
for corporate governance currently contained in Table A (although there are some changes introduced to the model provisions of Table A).
A CLS will not be permitted to have an objects clause, so that a CLS will have the same unqualified legal capacity to do
anything that a natural (ie a human) person may lawfully do. Therefore, the doctrine of ultra vires (“beyond the legal powers”) will no longer apply to a CLS, and a CLS will,
by default, be empowered to do anything lawful that its directors determine. This is the main distinguishing feature of the CLS compared to other types of private companies limited by shares, such as the DAC.
A CLS will be prohibited from offering securities (equity or debt) to the public. Subject to specific exemptions, a CLS may not make to the public any offer of any of its shares, debentures or other securities, nor allot (for cash or otherwise) any of its shares or debentures with a view to their being offered for sale to the public. The Bill also places a new prohibition on a CLS having securities (or interests in them) admitted to trading or listing on any market (including a regulated market) in Ireland or elsewhere and from applying for any such admission.
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Companies Bill 2012 The Company
Limited by Shares
A CLS may have a single director (the existing entitlement to have a single member will be retained), but a sole director will not be permitted to be the company secretary, therefore requiring a second person to perform that role.
Proceedings of Directors
The Bill imposes a duty on a director of a CLS who is, in any way, whether directly or indirectly, interested in a contract or proposed contract with the company, to declare the nature of his or her interest at a meeting of the directors of the company. In the case of a proposed contract, the Bill requires a director to make a declaration at the directors’ meeting at which the question of entering the contract is first considered and, in the case of a director becoming interested in a contract after
it being made, be made at the first meeting afterwards. The Bill requires such declarations to be entered on to the register within three days (of making or giving the declaration).
The Bill permits a CLS to dispense with the requirement to hold an annual general meeting (“AGM”) and provides that
AGMs (should the requirement not be so dispensed with) and extraordinary general meetings (“EGMs”) may be held inside or outside the State. The Bill now expressly confirms that a single member holding 10% or more of the paid up share capital of a company carrying the right to vote has the right to convene an EGM. Subject to conditions, a CLS (whether having a single member or multiple members) will be entitled to adopt written procedures in place of an AGM.
Auditing, Financial Statements and Accountability
A CLS may avail of the audit exemption where at least two of the prescribed conditions in respect of the particular year are satisfied:
the balance sheet total of the company does not exceed €4.4m;
the amount of the turnover does not exceed €8.8m; and
the average number of persons employed by the company does not exceed 50.
The Bill provides that directors of a CLS, the balance sheet of which exceeds €12.5m and the turnover of which exceeds €25m, must prepare a compliance policy statement. This statement must set out the company’s policies (ie those that, in the opinion of the director, are appropriate to the company)
on its compliance with certain statutory obligations (principally those under the Bill).
Variation in Capital
Unless its constitution provides otherwise, a CLS will have the power by ordinary resolution to increase its authorised share capital or to cancel unissued shares (if
in either case it has chosen to have an authorised share capital) and to consolidate or subdivide its shares. On conversion of shares into redeemable shares, a significant change in the Bill is the proposed removal of the restriction that no shares may be converted into redeemable shares if, as
a result, the nominal value of the non- redeemable issued share capital would be less than 10% of the nominal value of the total issued share capital of the company concerned. This is consistent with the removal of the corresponding
restriction applicable at the time of issue or redemption of redeemable shares.
3 | companies bill 2012 · the company limited by shares (the “cls”)
Companies Bill 2012 The Company
Limited by Shares
Reduction in Company Capital
A reduction of company capital may be effected by employing the Summary
Approval Procedure (below) or by adopting the traditional procedure of passing a special resolution that is to be confirmed by the court.
Summary Approval Procedure
The Bill will introduce a procedure referred to as the Summary Approval Procedure, under which certain activities that would otherwise be restricted may be undertaken by a company subject to the shareholders passing an appropriate special resolution following the making of a prescribed declaration by the directors. The rationale here is to establish a single shareholder validation procedure. This will be applied to many types of transaction that currently require shareholder (or even court) approval, such as:
financial assistance by a private company for the acquisition of its own shares;
guarantees for loans to a company’s own directors;
mergers of companies of many types;
a reduction of capital;
certain reorganisations of a company’s capital; and
treating the pre-acquisition profits of a subsidiary as being available for distribution by the parent.
Following the enactment of what will be the Companies Act 2014, a then-existing
private company limited by shares will have to decide, within the transition period of 18 months of commencement of the then-Act, whether to opt into the new regime for a CLS or opt out by becoming some other type of company.
From the date of commencement of the then-Act until the expiry of the transition period, all existing private companies limited by shares will be subject to the laws applying to the DAC limited by shares. Any private company limited by shares that wishes to become a CLS and not retain its objects clause should elect to re-register
as a CLS during the transition period. A CLS will be particularly well suited to small trading companies and groups. Banks, insurance undertakings, State companies and existing private companies limited by shares that have debentures listed on an exchange cannot become a CLS and so must become DACs (or another acceptable form such as a public limited company). Joint venture companies will also favour a DAC to a CLS structure.
The articles of a CLS may take the form of substantive regulations or a statement confirming that the provisions of the Companies Act 2014 are adopted. If adopting the former approach it would be inadvisable for a CLS to incorporate its existing articles into its constitution
without further consideration and analysis as provisions of existing articles may conflict with mandatory provisions of what will have become the Act.
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