The Companies Act 1963 and the many amendments, other acts and orders which govern company law in Ireland will shortly make way for an all-encompassing new company law regime. The Companies Bill 2012 (the "Bill"), which is currently making its way through the Oireachtas, is expected to be signed in 2014 but not to come into force until three to six months after enactment.
Changes to Existing Private Companies Limited by Shares
The Bill significantly changes the administration of company law in Ireland and will have a fundamental impact on all companies registered in Ireland, particularly private companies limited by shares which account for approximately 89% of all companies registered.
The Bill is divided into two parts:
- Volume I (parts 1 to 15) dealing with companies which are currently private companies limited by shares; and
- Volume II (parts 16 to 25) dealing with all other types of companies.
How does this affect your company?
The Bill proposes that existing private companies limited by shares will be converted into either: (i) a Company Limited by Shares (“CLS”); or (ii) a Designated Activity Company (“DAC”). Once the Bill is enacted, if your company is a private company limited by shares, you will need to decide if it should become a CLS or be re-registered as a DAC. Some matters to consider when making this decision include:
- does the company require an objects clause in order to prevent it from acting beyond its powers (ultra vires)?; and
- is the company required to have a limited capacity by any current arrangement or agreement. For example, banking arrangements?
If the answer to these questions is no, then the company may become a CLS.
A CLS is a private company limited by shares, but it does not have an objects clause. It will have the same contractual capacity as a natural person, and thus the ultra vires rule will not apply to it. Some other characteristics of a CLS are:
- It will have a one-document constitution instead of the current Memorandum and Articles of Association; and
- It may have only one director, however, where a company has only one director that person may not also be secretary (all other types of company will be required to have at least two directors).
If the company requires an objects clause or its capacity is restricted by some agreements or arrangements then it will be required to re-register as a DAC.
Actions to be taken when the Bill is enacted and the new consolidated companies act is commenced
The Bill provides that there will be an 18 month transition period from the date the new consolidated Companies Act is commenced. If no action is taken to re-register as a DAC or some other company type in that 18 month transition period, your company will be deemed to be a CLS at the expiry of the 18 months and will retain its existing constitution with the exception of its objects clause and any provisions of its constitution which would be inconsistent with a mandatory provision of the new Act. It is expected that most existing private companies limited by shares will become CLSs.
If your company is not going to be re-registered as a DAC or other company type and the member(s) have not already adopted a new constitution, the directors can, before the end of the transition period, prepare a new constitution in the prescribed form or its old constitution and deliver it to each member of the company and to the registrar of companies. The company will then be registered as a CLS and a new certificate of incorporation will be issued.
What is the deadline for becoming a DAC?
A company may convert to a DAC by passing an ordinary resolution not later than 3 months before the end of the transition period. A DAC will essentially be the same as an existing private company limited by shares.
If members holding 25% of voting rights in the company serve written notice requesting the company to re-register as a DAC, the Bill requires that the company be re-registered as a DAC.
The Bill also seeks to codify directors' duties with directors' fiduciary duties being placed on a statutory footing for the first time. This will be warmly received by those previously calling for more guidance on the matter. The duties outlined apply to directors of all company types, including de facto and shadow directors. The main duties detailed are:
- To act honestly, responsibly and in good faith;
- To act in accordance with the constitution of the company;
- Not to use company property for own or others’ use unless approved by the members or permitted in the constitution;
- Not to fetter discretion unless permitted by the constitution or it is in the company’s interests;
- To avoid conflicts of interest unless released by members or permitted under the constitution;
- To exercise care, skill and diligence; and
- To have regard to the interests of employees and of members.
In addition to the above and, if a private company exceeds prescribed thresholds based on balance sheet total and turnover, directors will be obliged to prepare a directors’ compliance statement which must be included in the directors' report to the financial statements.
Company Secretary - Change to obligations
The Bill proposes to remove the obligation on the company secretary to ensure compliance with the provisions of the Companies Act. In doing so the Bill recognises that the secretary has little or no statutory power to ensure compliance. The role of the secretary is decided by the board of directors and the secretary should not be held responsible for non-compliance as the secretary relies entirely on decisions made by the board of directors. To read more, please click here.
Majority written resolutions of members
For the CLS companies and DACs (where the constitution does not otherwise provide), it will be possible for a majority of members to pass either an ordinary resolution (signed by over 50% of the members entitled to vote at general meetings) or a special resolution (signed by 75% of the members entitled to vote at general meetings). The effective date for such resolutions will be 7 days from the date of the last member’s signature for ordinary resolutions and 21 days from the date of the last member’s signature for special resolutions.
Reduction in minimum number of members
The Bill provides that the minimum number of members of public limited companies and of companies limited by guarantee not having a share capital will be reduced from seven to one.