New Company Law in Ireland
On 1 June, 2015 company law in Ireland will undergo a major transformation with the coming into force of the Companies Act, 2014. This new Act will replace and consolidate a total of 32 existing enactments relating to company law which, together, make up the current company law framework.
Once effective, the new Act will require all existing private companies limited by shares, the most common form of company in Ireland, to alter their legal form and to register a new constitution in place of their existing memorandum and articles of association. These companies will not be permitted to continue in their current form. The new Act also introduces changes for other company types.
For the private company limited by shares, it will mean a choice between converting to:
- a new company limited by shares;
- a designated activity company; or
- some other company type (e.g. an unlimited company or a public limited company).
The new company limited by shares (Limited) will have a single-document constitution that will differ substantially from its current memorandum and articles of association in that it will not have specific objects (i.e. purposes) but will have full and unlimited capacity to undertake any business or activity and to enter into any transaction. Its name must end with the word “Limited”.
A designated activity company (DAC) will also have a single-document constitution, but this will consist of a memorandum of association, to include specified objects, and articles of association – much like private limited companies under existing company law. As its name suggests, a DAC is a company that has specified objects designating the permitted activities of the company, thereby limiting the company’s capacity. Its name must end with the words “designated activity company”.
Other distinctions between a Limited and a DAC include:
- a Limited will be permitted to have one director instead of the minimum of two, as at present. If it has only one director, however, it will be necessary to appoint a different person to act as company secretary;
- a DAC must have a minimum of two directors (one of whom may also act as company secretary);
- a Limited may dispense with the holding of a physical annual general meeting, regardless of the number of members; the members may decide to hold a “written” meeting instead whereby matters required to be dealt with at an annual general meeting can be approved in writing;
- a DAC that has more than one member may not dispense with the requirement to hold an annual general meeting;
- a Limited will not be permitted to list debt securities; a DAC may do so;
- only a DAC may operate as a credit institution or insurance undertaking (subject to Central Bank approval); a Limited may not carry on these activities;
It is expected that the vast majority of existing private limited companies will choose to convert to the new form of company limited by shares, however some companies will, either by choice or due to statutory obligation, become a DAC. It is suggested, for example, that special purpose and some joint venture companies will choose to convert to DACs although, of course, any restrictions on a company’s activities may be imposed in a shareholders’ agreement.
Under the new Act, there will be a transition period of 18 months, starting on 1 June 2015, during which companies must re-register and adopt a new form of constitution which complies with the requirements of the new Act. Conversion to a Limited may be effected at any time up to the end of the transition period on 30 November 2016. Conversion to a DAC must be effected no later than 31 August 2016. However, it is recommend that companies convert to whichever form they feel is appropriate as soon as possible following the commencement date of 1 June 2015 as this will avoid unnecessary difficulties in dealing with third parties and avoid the complications that could arise by virtue of the fact that during the transition period an existing private company will be treated as a DAC and be subject to the law applicable to DACs until it converts to a Limited and at the end of the transition period it will be deemed to be a Limited with a deemed modified constitution.
Whilst there is a default position for companies that do nothing – they will be deemed to be a DAC during the transition period and be deemed to become a Limited at the end of the transition period – it is recommended that companies be proactive in converting and making the appropriate changes to their constitution. There are a number of reasons for this, including the fact that the new Act imposes an obligation on directors to prepare and register a new form of constitution that complies with the requirements of the new Act and the deemed constitution that will result from a failure to adopt one will lack clarity and be confusing. Also it is unlikely to be acceptable to the company’s lenders.
Conversion to a Limited is relatively straightforward and may be done by way of special resolution of the members passed at an extraordinary general meeting or, if the company’s existing constitution permits, by a written resolution signed by all the members. There are also provisions whereby the directors of the company can convert an existing private company to a Limited where the members do not do so.
Conversion to a DAC can be done by way of ordinary resolution of the members
If you have any queries or need advice on the options available and the steps to be taken further information can be obtained from Mark Ryan, partner, Whitney Moore, Wilton Park House, Wilton Place, Dublin 2, Ireland (tel + 353 (0)1 611 000 or email).