The Companies Act 2014 (the “Act”) was signed into law on 23 December 2014 and it is expected that it will come into effect on 1 June 2015. The Act will introduce significant reforms in company law in Ireland.
For ease of reading only, this briefing assumes that the Act is fully in effect.
Under the Act, an existing private company limited by shares (an “EPC”) has to decide, within a transition period of 18 months from commencement of the Act, whether to opt into the new regime for a private company limited by shares (a “LTD”) or opt out of that regime by becoming a designated activity company (a “DAC”) or some other type of company that the Act permits (a DAC is the company type under the Act that most closely resembles an EPC although the administration of a LTD is more straightforward). The Companies Registration Office (“CRO”) will not charge any fee for registering certain of the changes to company type outlined in this briefing.
- Unless expressly precluded from doing so, an EPC defaults to the new model form of company (the LTD) at the end of the transition period and is deemed to have a constitution in the form applicable to the LTD.
- Pending the end of the transition period, or re-registration as a LTD, the law governing an EPC will be that applicable to a DAC.
- An EPC can opt out of becoming a LTD by re-registering as a DAC or another company type.
- Where an EPC does not re-register, directors are obliged to file a new constitution extracted from the existing memorandum and articles of association.
- An EPC does not have to change its name during the transition period (unless it changes its company type).
- At all times (not merely during the transition period) the Act facilitates re-registration of one company type as another company type in procedures that are more flexible than under the previous law.
LTD or DAC?
The table below outlines some key features of a LTD compared with a DAC. Some companies, such as banks, insurers, semi-state entities and companies with debentures listed on an exchange cannot become a LTD and therefore need to convert to a DAC or other company type. In other cases a decision is required as to whether the features of a LTD are attractive to a company and its members or whether another company type under the Act ought to be adopted. Dialogue is necessary between directors, members and other stakeholders (including lenders) as to the structure to be adopted and the timing of the conversion/re-registration.
Please click here to view the table.
Converting to the New Model Private Company
The Act provides for three ways in which an EPC can become a LTD:
- During the transition period a company can submit a special resolution, its new model constitution (discussed below) and form N1 to the CRO. Upon registration of the documents, the CRO issues a new certificate of incorporation.
- A company’s directors can submit a form N1 together with its new model constitution as drafted by the directors. The directors must send a copy of the constitution to each member of the company. Upon registration of the documents, the CRO issues a new certificate of incorporation. The directors must ensure that the constitution does not alter the rights or obligations of the members of the EPC. The new constitution consists of the existing articles and also the provisions of its existing memorandum other than provisions that contain its objects or which provide for, or prohibit, the alteration of any of the provisions of its memorandum and articles.
- If, by the end of the transition period the private company fails to convert, the EPC is deemed to have become a LTD. The CRO then issues a new certificate of incorporation to the company. The constitution comprises of the existing memorandum (other than the provisions that contain its objects or provide for, or prohibit, the alteration of all or any of the provisions of its memorandum or articles) and the provisions of its existing articles.
In all cases, the suffix “Limited” / “Ltd” must appear in the company name so that any then-existing exemption to omit this suffix from the company name is lost.
Constitution of a LTD
The Act requires the constitution of a LTD to state:
- the company’s name;
- that it is a private company limited by shares and registered under Part 2 of the Act;
- that the liability of members is limited;
- particulars relating to its share capital;
- the number of shares (at least one) taken by its original subscribers; and
- any supplemental regulations which it is adopting.
While most of what was previously contained in the company’s articles of association now applies by statute unless the constitution otherwise provides, companies need to review their articles of association and ensure that tailored provisions, such as those dealing with pre-emption on transfer, are included in the new constitution or that some provisions in the Act that only apply if included in the constitution are adopted (such as an indemnity for directors).
Previously, many EPCs relied on the regulations of Table A from the previous Companies Acts. Despite being repealed by the Act, the regulations of Table A can continue in force (and do so where the conversion process is that outlined at (II) or (III) above) provided they are not inconsistent with a mandatory provision of the Act. Where Table A refers to any provision of the previous Companies Acts, that reference is to be read as being to the corresponding provision of the Act. The provisions of Table A may be altered or added to by means of a special resolution.
Converting to a DAC
An EPC may opt out of the new regime as follows:
- If members pass a special resolution to convert to any other type of company (including a DAC), provided the requirements applicable to such a company as set out in the re-registration requirements of the Act have been satisfied.
- Up to three months prior to the expiry of the transition period, there are two re-registration options:
- an EPC may re-register as a DAC by passing an ordinary resolution (the consent of the relevant Minister is required for a semi-state company); and
- an EPC must re-register as a DAC if a member or members holding more than 25% of the voting rights serve a notice in writing on the company requiring it to re-register as a DAC.
- Where an EPC does not re-register as a DAC before the end of the transition period (whether it is obliged to do so or not), one or more of its members holding not less than 15% of its issued share capital, or one or more creditors holding not less than 15% of its debentures, entitling them to object to alterations in its objects clause, may apply to court for an order directing the company to re-register as a DAC.
Where the members pass an ordinary resolution to re-register as a DAC or where the directors resolve to re-register an EPC as a DAC (for example because a notice is served by qualifying members or it is ordered by the court or otherwise required), the effect is to alter the company’s memorandum of association so that it states that the company is to be a DAC. The company must file the resolution, the new memorandum and articles of association and a form N2 with the CRO. The name of the company must include “designated activity company” or “DAC” (or the Irish language equivalent) unless the company is exempt from the obligation to do so.
As with a LTD, the constitution of a DAC can adopt in whole or part the statutory rules in the Act or continue to use its existing articles (including Table A of the previous Companies Acts) provided they do not conflict with mandatory provisions in the Act.
Protecting Members and Creditors
If any member considers that his or her rights or obligations have been prejudiced by the exercise or non-exercise of any power under the parts of the Act dealing with conversion, or of its exercise in a particular manner by the company or its directors, the member may apply to court for an order under the minority shareholder oppression provisions of the Act. Creditors holding not less than 15% of the debentures of a company, entitling them to object to alterations in its objects clause, may also apply to court for relief.
Directors of an EPC should engage in dialogue with relevant stakeholders to decide which of the company types permitted by the Act is most appropriate to the then-existing company’s circumstances. Those directors and stakeholders should consider whether the constitution of the company should adopt the statutory rules or retain, as fully as possible, existing articles of association. Although – having regard to the 18-month transition following the commencement of the Act– there is no immediate urgency in this exercise, the benefits of adopting the form of a LTD can only be availed of upon conversion of an EPC to a LTD, by express process or by the deeming provisions when the transition period ends.