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Conversion under the Companies Act 2014 – deadline approaching


Wednesday, June 1, 2016

The Companies Act 2014 (the “Act”) came into effect one year ago today on 1 June 2015. One major change under the Act is the requirement for all private limited companies to convert to a new company type. The deadline for this is fast approaching.

The two new company types are:

  1. a company limited by shares (an “LTD”), the standard model company – or
  2. a Designated Activity Company (a “DAC”), best suited for joint venture companies or companies established for specific purposes.

 

There are strict deadlines on converting:

  • To convert to an LTD you have until 30 November 2016.
  • To convert to a DAC you have until 31 August 2016.

To convert, companies will need shareholder and director sign-off. Given the holiday period over the summer, and the time it can take to collate signatures, we are advising our clients to take action now to make sure the deadlines are not missed to avoid a breach of company law.

Failure to convert before the above deadlines will lead to your company automatically converting to an LTD. This is not recommended as:

  1. it means that a company’s existing memorandum and articles will contain references to the old companies acts;
  2. it will lead to inconsistencies with many mandatory provisions of the new Act; and
  3. it can lead to interpretation issues or disputes. Companies may also miss the opportunity to convert to a DAC.

The decision to register as LTD or DAC will depend on the circumstances for each company and the purpose for which it is incorporated. It is anticipated that most companies will become LTDs.

As the LTD will not have an objects clause in its constitution, it is likely that the DAC model will be preferred by joint venture companies or specific structures that seek to place restrictions on the permitted activities of a DAC via its objects clause. Aside from the issue of an objects clause, there are a variety of issues to consider. These are set out in the table below.

LTDDAC
Company NameIt must end with Limited/LTD or the Irish equivalent.It must end with Designated Activity Company/DAC or Irish equivalent.
Company TypePrivate company limited by shares.Private company either (a) limited by shares or (b) limited by guarantee, having a share capital.
Memorandum and Articles of AssociationOne single document called a “constitution” will replace the current memorandum & articles of association.The memorandum and articles of association to remain. Will be known as a  “constitution”.
Objects ClauseNo objects clause. Concept of “ultra vires” will no longer apply and the LTD will have unlimited corporate capacity and the same capacity as a natural person.The objects to remain. Therefore “ultra vires” concept will continue to apply. Note:  third parties dealing with a DAC in good faith will not be prejudiced if the company exceeds its capacity as stated in its objects clause.
Share CapitalWill have an issued share capital but does not have to have an authorised share capital.Must have both an authorised and issued share capital.
DirectorsCan avail of the opportunity to have one single director. Note: the secretary cannot be the same person as the single director.2 director minimum required.
Annual General Meeting (“AGM”)Can dispense with holding an AGM entirely irrespective of the number of shareholders.Can only dispense with holding an AGM if it is a single member company.
Listing of SecuritiesCannot list, or have admitted to trading, any securities (debt or equity).Possible to list debt securities.
Written ResolutionsMay pass majority written resolutions.May pass majority written resolutions unless the constitution provides otherwise.
Audit ExemptionPossible to claim audit exemption.Possible to claim audit exemption.
Name change and practical knock-on effectsNo name change required.As the DAC will require a name change, companies should consider practical knock-on effects such as the requirement to change stationery and signage, website, company seal etc.

Philip Lee is advising clients to consider this matter now and to convert their companies in good time.

Our corporate team are available to assist you with conversion.

Listen to Eoghan Doyle summarise the complexities of the Act by answering the 10 key questions asked by businesses:

 

The content of this article is provided for information purposes and does not constitute legal or other advice


Author

Eoghan Doyle

PARTNER


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