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.
For the most part, this legislation modernised and simplified company law in Ireland. While much of the Act simply restated the previous law, there were some 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 ceased to exist and all companies were converted into one of two new types of company: an ‘LTD’ or 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 and want to restrict the company so that it only takes action for that purpose.
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 wished to remove a director.
In relation to an LTD 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.
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.
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 is 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.
- reduce its capital.
While previously the above situations might have needed 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 Companies Act became operative on 1 June 2015 and there have been very few teething problems since its enactment.