Companies Bill 2012 has been saved
Companies Bill 2012
Preparation is key to success
As the enactment of the Companies Bill 2012 (the “Bill”) draws near, Irish companies need to start preparing for the transition to the new regime. Following enactment, the entire Companies Acts 1963 to 2014 as we know it will convert into a single Act providing a state of the art company law code in Ireland.
The focus now for most companies needs to be deciding what type of company they wish to become – a designated activity company (“DAC”) or a company limited by shares (“LTD”). The LTD is being referred to as the new model private limited company. Currently in Ireland, the private company limited by shares is the most common company registered with the Companies Registration Office. It is therefore no surprise that the new Bill has been predominantly designed around the new LTD. Companies will be subject to an 18 month transition period running from that date of enactment during which companies, through their directors and shareholders must decide what type of company is most suitable for them. It should be noted that existing private companies limited by guarantee and having a share capital and certain private companies limited by shares cannot be LTDs (e.g. charities, special purpose vehicles or companies who publish offer documents like debentures or debt securities) and will be obliged to re-register as a DAC or as another type of company.
There are two types of DACs, a private company limited by shares and a private company limited by guarantee and having a share capital.
Once the decision to convert to a DAC or a LTD is made, it will become apparent what parts of the new Bill will be applicable to your company type. For example, Parts 1-15 of the Bill will be relevant to the LTD; Part 16 will be relevant to the DAC.
Another major decision that existing private companies will have to make is whether they adopt a new constitution or retain their existing Memorandum and Articles of Association.
How existing private companies can prepare themselves – what needs to be done:
- Undertake an examination of the current Memorandum and Articles of Association of the company:
- Are there specific Articles that need to be retained?
- Are they consistent with the new Bill?
- Is the objects clause of the Memorandum of Association to be retained?
- Is the share capital clause to be retained?
- Is the company obliged to be a DAC due to its activities?
- Does the company need two directors?
- Who will be the company secretary?
- Are there existing Articles which are now redundant?
Principal differences between DACs and LTDs
Will have objects clause - two document constitution
No objects clause – full and unlimited capacity - one document constitution
|Must state authorised share capital
No requirement to state authorised share capital
Requirement for two directors
Can have one director
May not dispense with AGM
Can dispense with the AGM - both single and multi-member companies
What companies need to do during 18 month transition period
Existing private companies converting to a LTD (“Opt In”)
- Shareholders pass a special resolution to adopt the new constitution
- Application is made to the CRO to become a LTD – Form N1 (no filing fee ). A new certificate of Incorporation will issue from the CRO
If the shareholders do not pass a special resolution or adopt a new constitution to convert to a new company type:
- Directors are obliged to prepare a new constitution and submit it to the CRO BUT no changes can be made to the existing Articles.
- Application is made to the CRO on Form N1 (no filing fee). A new certificate of Incorporation will issue from the CRO.
- Each member should also receive the new constitution prior to lodging same with the CRO.
All companies are treated as DACs during the transition period which will mean that the advantages that will apply to the LTD under Parts 1-15 will be denied to companies that do not elect to opt in to the new regime. Existing companies that have adopted in whole or in part the regulations contained in Table A will continue during the transition period to be governed by those regulations notwithstanding the repeal of the Companies Acts, 1963 to 2013.
Existing private companies converting to a DAC (“Opt Out”)
- Shareholders pass an ordinary resolution at any time up to three months before the end of the transition period.
- 25% of voting members can serve written notice on the company requesting the company to re-register as a DAC.
- Thereafter, conversion must be by special resolution.
- Application is made to the CRO on Form N2 (no filing fee). A new certificate of Incorporation will issue from the CRO.
No action taken after 18 month transition period:
If no action is taken by the company during the transition period, the company automatically becomes a LTD; the CRO will issue a new certificate of incorporation. However, it should be noted that the current Memorandum and Articles of Association remain in force with the exception of the objects clause and any Article which is inconsistent with the Act will be void.
This will cause a lot of uncertainty and extra unnecessary costs as companies would be required to examine the Act each time a transaction is being entered into to determine if any of the existing Articles are now void.
The recommended strategy will be for directors to initiate a discussion with the shareholders on the options that are available to the company, as failing the members taking action, the onus is on the directors to take action.
By preparing for the Companies Bill early, companies will be able to concentrate on their business and avoid undue pressure at the end of the transition period. Voluntary conversion to a new company type will prove more cost effective going forward.
Below, is a guide to the timelines that companies will face upon enactment of the Bill.
Sample timeline based on enactment from 1 January 2015