New companies legislation recently came into force. Will it affect your business? How?
Company law in Ireland underwent a seismic change in June 2015. The Companies Act 2014 replaces previous company legislation and is now the largest piece of legislation in Ireland. We would advise our clients to consider the impact that it may have on their business. If you have any questions in relation to our explanations below or in relation to the Act as a whole, don’t hesitate to get in touch. We are now providing fixed fee health checks for companies as the Act comes into force.
For the most part, this legislation modernises and simplifies company law in Ireland. While much of the Act simply restates the previous law, there are some new changes to be aware of. We outline examples of these changes below:
New Company Types
Many of our clients operate their businesses through private companies. This type of company will cease to exist and our clients will need to convert into one of two new types of company: an “LTD” or a “DAC”. Most clients will wish to convert to the LTD and this can happen automatically at the end of an 18 month transition period if no action is taken. However, for those clients who wish to use the DAC structure, they will need to pass a shareholder resolution and re-register as a DAC.
Why would I want to use a DAC company?
Certain types of companies may wish to use the DAC structure. These include charities, management companies and companies limited by guarantee. One last category relates to situations where the shareholders envisage a specific purpose for their company. Furthermore, they want to restrict the company so that it only takes action for that purpose.
DAC companies will need to change their names to include their new company type.
If you think that your company needs to re-register as a DAC, don’t hesitate to get in touch.
This Act sets out very clearly the duties and responsibilities of company directors. These duties apply alongside the directors’ duties set out in other pieces of legislation.
Under previous legislation, private companies had a Memorandum and Articles of Association as their founding documents (commonly referred to as the “M&A”). These documents set out the basic rules for the company along with the procedures to be followed in events such as shareholder meetings or where the company wishes to remove a director.
In relation to an LTD form of company, the M&A will be converted to one constitutional document (the “Constitution”). The Act contains some optional and mandatory provisions to insert into the Constitution and where the Constitution is silent on any issue, the provisions in the Act will apply by default.
One significant change is that a company is no longer required to set out its purpose, or “objects”, in the Constitution. Under previous legislation, a company could not act outside its stated objects. Now companies will be free to pursue new objects as the opportunities arise without having to change their Constitution.
Now is a good time for business owners to review their M&A as it converts to a Constitution. For example they may wish to disapply some optional provisions of the new Act.
If business owners do not wish to update or reform the constitution, the company directors will still be obliged to make the small changes required to convert the M&A to a Constitution and register it with the CRO.
Annual General Meeting (AGM)
LTD companies will not be required to hold an annual shareholder meeting. Instead, the issues that would normally be dealt with at an AGM can be dealt with in a document which is signed by the shareholders.
Under the Act, it will be possible for two Irish companies to merge. This type of transaction can be completed using the SAP procedure (explained below) without the need for court approval. This can be an efficient way to merge two businesses in Ireland at a relatively low cost.
Shareholder approval for certain transactions
This Act introduces a simplified procedure for approving certain types of transactions. These include situations where a company wishes to:
- complete transactions with directors or connected persons;
- wind up the company voluntarily;
- give financial assistance for the purchase of its own shares; or
- reduce its capital.
While previously the above situations might sometimes have called for a complicated approval process or even court approval, they can now be completed with the “summary approval procedure” (often referred to as “SAP”). This involves the shareholders passing a special resolution and the directors swearing a statutory declaration that the company is solvent. Sometimes the declaration will need to be accompanied by the report of an independent person.
The Act became operative on 1 June 2015. While we have outlined some of the changes most relevant to our clients, it is a significant and large piece of legislation which covers many areas of law relating to companies. Now is an opportune time for all business owners to ensure that their companies are in order and that they are complying with the law. Don’t hesitate to get in touch if you have concerns – we can provide a fixed fee health check for your company.