The Companies (Accounting) Act 2017 (the “2017 Act”) was signed into law on 17 May 2017 and it is expected that it will come into effect shortly. The 2017 Act will amend the Companies Act 2014 (the “Act”). This briefing focuses on amendments affecting the obligation on a private unlimited company to disclose its financial statements publicly and on other amendments affecting companies more generally.
For ease of reading only, this briefing assumes that the 2017 Act is fully in effect.
Private Unlimited Companies
A private unlimited company (“ULC”) incorporated in Ireland must file its financial statements with the Companies Registration Office (“CRO”) if it is deemed to be a designated type under the Act. The 2017 Act increases significantly the number of designated types and therefore makes it much more difficult for a ULC to avoid the filing obligation which, although no announcement has been made, will likely apply with respect to financial years commencing on or after 1 January 2017. With the exception of the ULC under paragraph 1(ii) below, the following ULCs are designated, namely:
1) A ULC that at any time during the relevant financial year:
i) has been a subsidiary of a limited liability undertaking;
ii) has been a holding company of a limited liability undertaking; or
iii) has rights exercisable in respect of it by two or more limited liability undertakings which, if exercised by one, would make the ULC a subsidiary of that undertaking.
Designated ULCs under paragraph 1 would include, for example, a ULC with either a controlling interest in a limited company or which is controlled by a limited company, for example, by way of majority voting rights or the right to control the composition of the company’s board. It would also include a ULC in a structure in which a limited company has an option to acquire a controlling interest in the ULC.
A ULC that is a holding company of an unlimited company as set out in paragraph 1(ii) above and which would not otherwise be a designated type under the revised provisions, would not be included within the extended types until after 1 January 2022 for the ULC’s financial year commencing on or after that date.
2) A ULC, all of the members of which are:
i) companies limited by shares or by guarantee;
ii) unlimited companies, every member of which is a limited liability company;
iii) partnerships (not limited), every member of which is a limited liability company;
iv) limited partnerships, every general partner of which is a limited liability company; or
v) any combination of the bodies referred to in this paragraph 2 and paragraph 1 above.
This would include, for example, a ULC which is ultimately owned, either directly or indirectly, by unlimited entities. It is irrelevant if the entity is governed by Irish law or a foreign law.
3) A ULC, the direct or indirect members of which comprise any combination of ULCs and bodies referred to in paragraph 2 above, such that the ultimate beneficial owners have limited liability.
4) A ULC that is a credit institution or an insurance undertaking or a holding company of a credit institution or insurance undertaking
External Companies (Part 21 of the Act)
Under the Act, a foreign incorporated limited liability body corporate with a branch establishment in Ireland has to register certain details at the CRO and file accounts on an annual basis. The 2017 Act extends the registration and filing obligation to unlimited foreign incorporated bodies that are subsidiaries of limited liability bodies corporate.
Unlimited Companies’ Names
The Act introduced a requirement that an unlimited company must use the words “unlimited company” in its name. The Act1 provided that if special circumstances did exist which rendered it, in the opinion of the Minister, expedient to grant an exemption from such use, the Minister could have granted such an exemption. The 2017 Act removes the power of the Minister to grant an exemption under the Act but exemptions already granted continue until their stated expiration.
The 2017 Act introduces a new company size (the micro company) defined as an undertaking that, in relation to a financial year, qualifies for the small companies regime and does not exceed more than two or more of the following (i) a balance sheet total of €350,000; (ii) a turnover of €700,000; (iii) average number of employees of 10.
The 2017 Act also increases the small company and small group company thresholds by increasing the turnover ceiling from €8.8m to €12m and the balance sheet total from €4.4m to €6m. The 2017 Act increases the medium-sized company threshold so that the turnover ceiling increases from €20m to €40m and the balance sheet total increases from €10m to €20m.
The 2017 Act removes the exemption available to medium-sized companies which allowed those qualifying companies to file abridged financial statements.
The Act requires a company to disclose remuneration details, for both the current and the preceding financial year, in respect of company directors, including gains made by directors on the exercise of share options. The 2017 Act introduces an additional obligation to disclose any consideration to third parties for the services of any person as a director of the company or of any of its subsidiaries, or otherwise in connection with the management of the company’s affairs or that of any of its subsidiaries.
In relation to the acquisition or disposal of its own shares, the 2017 Act provides that the company will have to give reasons in the report for any acquisition of its own shares during the financial year as well as the proportion of called-up share capital held at the beginning and end of the financial year.
Guarantee by Holding Company
The 2017 Act introduces an amendment to the procedure whereby a subsidiary company can file consolidated financial statements of its holding company (established under the laws of a state in the European Economic Area) rather than to file its own accounts, provided that the holding company gives a guarantee. The 2017 Act provides that this guarantee must cover “commitments” in addition to “liabilities” so that the irrevocable guarantee referred to in the Act will be of all amounts shown as liabilities and commitments in the financial statements.
The 2017 Act introduces an amendment to the Act in relation to preferential payments in a winding up which is designed to address the uncertainty surrounding the priority of certain preferential creditors such as the Revenue Commissioners.
Definition of Credit Institution
The Act expanded the definition of credit institution3 to include a company or undertaking engaged in the business of accepting deposits or other repayable funds or granting credit for its own account. This part of the definition, on its wording, included a large number of companies which were not credit institutions as that term would generally be understood which means that these companies were prohibited by the Act4 from being private companies limited by shares (LTDs). The 2017 Act restricts this definition so that it is more aligned with the pre-Act definition, to include a company or undertaking engaged in the business of accepting deposits or other repayable funds from the public and granting credit for its own account (emphasis added). It is expected that some companies which reregistered as designated activity companies when the Act came into force will now register as LTDs.
The 2017 Act introduces amendments to other legislation resulting from legislative developments since the Act commenced. These include amendments to the Transparency (Directive 2004/109/EC) Regulations 20075 to reflect references to the Act and to the Accounting Directive.6 The 2017 Act also amends the EC (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 to the effect that UCITS investment companies established under the Act are obliged to file financial statements and directors’ reports. The 2017 Act also introduces changes to the EU (Alternative Investment Fund Managers) Regulations 2013 to take account of changes in EU law in relation to audit.7