Monday, May 18, 2015
There are now 10 working days until the Companies Act 2014 (the “Act”) comes into force in Ireland. The Act will radically change the existing legal framework for companies in Ireland. Over the next 10 days, we will provide you with a snapshot of 10 key changes to consider in advance of the Act commencing on June 1st.
Day 1: We take a look at one of the major changes under the Act; the two new company types known as “LTDs” and “DACs” and how the conversion process works.
All existing private companies limited by shares will be required to change to a new company type. The Act introduces a “conversion” process under which all private companies limited by shares must elect whether to opt into the new regime for a private company limited by shares (called an “LTD”) or opt out of that regime by becoming a designated activity company (“DAC”), or some other type of company that the Act permits.
How to convert?
Following commencement of the Act, there will be an 18 month “transition period”, during which private companies limited by shares can take action to become the type of company they choose. If a private company limited by shares does nothing, then by default it will become an LTD at the end of the transition period.
Converting to an LTD: from 1 June 2015 – 30 November 2016
Converting to a DAC: from 1 June 2015 – 31 August 2016
What if you do nothing? This is not recommended.
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.
|Company Name||It must end with Limited/LTD or the Irish equivalent.||It must end with Designated Activity Company/DAC or Irish equivalent.|
|Company Type||Private company limited by shares.||Private company either (a) limited by shares or (b) limited by guarantee, having a share capital.|
|Memorandum and Articles of Association||One 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 Clause||No 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 Capital||Will have an issued share capital but does not have to have an authorised share capital.||Must have both an authorised and issued share capital.|
|Directors||Can 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 Securities||Cannot list, or have admitted to trading, any securities (debt or equity).||Possible to list debt securities.|
|Written Resolutions||May pass majority written resolutions.||May pass majority written resolutions unless the constitution provides otherwise.|
|Audit Exemption||Possible to claim audit exemption.||Possible to claim audit exemption.|
|Name change and practical knock-on effects||No 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.|
The content of this article is provided for information purposes and does not constitute legal or other advice