The Companies Act 2014 - What Directors need to Know

Added: Thursday, July 16, 2015

The Companies Act 2014 What a Company Director needs to Know- PART 1 The new Companies Act 2014 is a simplification of Company Law. It is a new rule book for Company Directors and came into force on the 1st of June 2015. The new Act introduces two new types of private companies limited by shares, to replace the existing type of private company limited by shares. Shareholders and Directors of existing LTD’s will have to decide whether to register as a company limited by shares (LTD) or become a designated activity company (DAC). This is a decision that must be made by almost 90% of Irish companies that are currently private limited companies The majority of newly incorporated private companies will choose to become LTDs and it is expected that most of the current registered private limited companies will convert to the new model Private Limited Company. It is important to note that there is an 18 month conversion period during which existing companies will have to decide on which form they wish to take i.e. either a LTD or DAC. Key Features of the new model Private Company Limited by Shares are as follows • 1- 149 shareholders. May have just one Director but must have an additional Company Secretary • Shareholders only liable for unpaid portion of unpaid share capital • Name must end on ‘Limited or ‘Teoranta’ • No main objects clause. The new LTD will have full unlimited capacity the same as a natural person,, as it will not have and objects clause and so it will not be the subject to the doctrine of ultra vires • The new LTD whether being incorporated now or converting to the new model will have a one document constitution. T here will be no more Memorandums of Association and Articles of Association for a Company. • The constitution will state the name, that it is a private limited company limited by shares registered under Part 2 of the new Act, any supplemental regulations, the authorised share capital of the company(if any), and the number of shares taken by each subscriber. It must be signed by the subscribers and will be in the form as set out in the first schedule to part 2. • The new LTD is not required to state an authorised share capital but may instead state that it its share capital w ill be divided into shares of a fixed amount specified in the constitution. • The new LTD may become Audit exempt/Dormant • And the company can also dispense with having a specified Authorised Share Capital Key Features of Designated Activity Company (DAC) • 1-149 members/shareholders • It will have a two document constitution similar to the old Memorandum and Articles of Association • It must have two directors Existing companies which are invisaged as becoming DACs would include Trustee companies, charities, companies limited by guarantee having a share capital and companies incorporated for a specific purpose for which the shareholders want the capacity of the company to be clearly stated. Conversion of the existing private company to either a LTD or DAC during the transition period Where shareholders do not engage with this process and actively convert, there is then an obligation on the Directors to take action. They must prepare a minimal new form constitution and circulate it to the shareholders for consideration and then file it in the CRO with the relevant Form N1. This prescribed form details the person who is, or the persons who are, to be the first director or directors of the company, the secretary, the registered office, the place where the central administration of the company will normally be carried on, details of the activity of the company being carried on in the State and the place in the State where it is being carried on must be completed as part of the incorporation process. The CRO will then issue a Certificate of Incorporation if this is a new company or will issue a new Certificate of Incorporation in the case of a conversion of an old private limited company to either a new LTD. It is important to know that if Directors/Shareholders are not proactive in converting to either a DAC or LTD their company will automatically ‘convert’ to the new form LTD at the end of the transition period and have a constitution comprising its existing Memorandum of Association, bar the objects clause and of its existing Articles of Association with the CRO (Companies Registration Office) being obliged to give effect to this. Notwithstanding this we set out now the reasons why Directors should convert their company to the new LTD • It is good corporate governance to do so and conversion should be seen as an exercise in risk minimisation by the Board of Directors • The company will be looked upon more favourably by its own shareholders, banks, potential investors, Enterprise Boards and other third parties with which it deals • Directors may be exposed where shareholders have been prejudiced by inaction • Companies wishing to become ‘single Director’ companies must convert to the new LTD • The company will have a deemed or imaginary constitution if it doesn’t convert. The Companies Registration Office will not produce a constitution for a company after the conversion period. • The law will consider the company a DAC during the 18 month transition period. Notwithstanding that you are in fact a private company, you will be subject to Volume II Part 16, DAC law If you would like any further information on the conversion of your company in accordance with the Companies Act 2014 contact John Nash Solicitors, Abbey Street, Loughrea, County Galway.