The Companies Act 2014 was signed into law by the President on the 23rd December 2014 and came into effect on the 1st June 2015 by way of Commencement Order, SI 169 of 2015.
The Act consolidates the existing Irish Companies Acts and many of the related statutory instruments into a single statute. The aim of the Act is to both simplify and reform the existing company law. The Act governs all forms of companies from new private limited company , designated activities company, public limited company, unlimited companies etc. The 2014 Act consists of 1448 sections and 17 schedules and is the largest piece of legislation to ever be enacted in the history of the State. For this reason we have sought to focus on a limited aspect namely the implications for private limited companies.
Almost 90% of companies registered in Ireland are private limited companies. This structure is being replaced by two alternative structures:-
(a) A new private limited company or
(b) A designated activity company
The new private limited company will have a single-document constitution. This will differ substantially from its current memorandum and articles of association and in particular it will no longer have an “objects clause” which restricted the type of activity a company could undertake. Instead the new private limited company will have full and unlimited capacity to undertake any business or activity and to enter into any transaction and the doctrine of ultra vires no longer applies. It should be borne in mind that a new private limited company may be restricted in its activity by other governing documents to include shareholders agreements but those are issues for the company and its directors, not for third parties transacting business with the company. The new private limited company’s name must end with the words “Limited”.
A designated activity company (DAC) will also have a single-document constitution, consisting of a memorandum of association, to include specified objects (designating the permitted activities of the company) and articles of association. Its name must end with the words “designated activity company”.
The other differences include:-
- a new private limited company will be permitted to have one director whereas previous legislation require a minimum of two. However where there is only one director, 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 new private limited company may dispense with the holding of a traditional annual general meeting in favour of a “written” meeting whereby the business formerly transacted at annual general meeting can be approved in writing. A DAC that has more than one member must hold an annual general meeting;
- A new private limited company will not be permitted to operate as a credit institution or insurance undertaking (subject to Central Bank approval) whereas a DAC may carry on these activities, assuming this activity falls within the objects clause of the company;
It is expected that the vast majority of existing private limited companies will choose to convert to the new form of private company limited by shares. However some companies, for example special purpose vehicles may become a DAC.
The conversion to a new private limited company is by way of special resolution of the members passed at an extraordinary general meeting or, if the company’s existing memorandum and articles of association permit (now its constitution), by a written resolution signed by all the members. The directors of the company can convert an existing private company to a new private limited company where the members do not do so. The reasons the directors might do this is discussed below.
The conversion to a DAC can be done by way of ordinary resolution of the members.
The transition period provided under Section 15 of the Act is 18 months although the Minister for Jobs, Enterprise and Innovation does have the power to extend the period by up to 12 months in certain circumstances.
During the transition period and pending a decision an existing private limited company will be treated as and will be subject to the provisions applicable to a designated activity company.
At the end of the transition period if an existing private limited company has not already re-registered as a designated activity company or some other company type it will be deemed under Section 56 of the Act to have become a new private limited company with a single document constitution consisting of the provisions of its existing memorandum of association (excluding its objects clause and clauses that allow or prevent the alteration of all of any of the provision of its memorandum or articles) and the provisions of its existing articles of association. However the directors must, unless the company has already adopted a constitution appropriate to a new private limited company, prepare such a constitution and deliver it to each member of the company and to the Companies Registration Office for registration. While a failure on the part of the directors to attend to the foregoing does not carry any criminal sanction a failure to adopt an appropriate constitution may cause confusion and may result in difficulties when dealing with the company’s bankers and specifically their lenders.
It should be noted that under Section 58 of the Act members holding no less than 15% of the company’s share capital or any class of share and creditor holding not less than 15% of the company’s debentures entitling them to object to any alteration of the company’s objects may apply to the court for an order requiring the company to reregister as a DAC
In addition under Section 63 of the Act any member of a company who considers that he or she has been prejudiced by anything the company or its directors have done or failed to do as regard the conversion of the company may apply to the Court for appropriate relief. If the directors have failed to comply with their obligations to re-register the company as a new private limited company there is a rebuttal presumption that the directors have exercised their powers in a manner which is oppressive to that member or in disregard of his or her rights as a member.