15 May 2015
Changes to Irish company law require companies to adapt
The Irish Companies Act 2014, which consolidates the existing Companies Acts 1963 to 2013, is expected to commence on 1 June 2015. There are a number of material changes contained in the Act – in particular, the current model of private limited company (which is the most common company type in Ireland) will be split into two types: the private company limited by shares (LTD) and the designated activity company (DAC). There are also a number of changes aimed at improving corporate governance, for example, codification of directors’ duties.
The Act, which modernises and consolidates all existing Irish company laws, will help to ease administrative burdens on Irish companies. However, these reforms will require directors and shareholders to consider how best to implement the changes brought about by the Act to their company.
Under the Act, two forms of private limited company will exist, the LTD and the DAC. To decide which form is the most appropriate, there are a number of factors to consider.
A LTD company will have full corporate capacity (no objects clause) and a DAC will retain its objects clause and will have restricted capacity. In some circumstances, it will be very clear which company type to convert to. For example, all regulated financial institutions and/or private limited companies which have listed debt securities must convert to a DAC.
Some of the other principal differences are outlined below:
Within the relevant transition times, a company must decide which new form to adopt. Any private limited companies which do nothing during this time will automatically convert to a LTD after the 18-month period expires.
Conversion to either form can be achieved simply by way of passing a special resolution, adopting a new form of constitution and filing the relevant forms with the Companies Registration Office (CRO).
For all other company types (for example, the public limited company, companies limited by guarantee or unlimited companies), they will not have to convert but will have to review the changes in the Act that are applicable to them.
There have been some key changes in relation to corporate governance and practical matters, as
The Act has provided a number of statutory default provisions which will apply if the constitution is silent on such matters. However, these statutory defaults can be modified or disapplied in the company’s constitution.
The common law directors’ duties and responsibilities have been codified and can be found in Part 5 of the Act.
A company must still have a company secretary (note: for single director LTDs, the secretary cannot also be that sole director). The Act imposes a duty on the directors of a company to ensure that the person appointed as the secretary has the skills or resources necessary to discharge their statutory or other duties.
Any person, authorised by the board of directors of a company, to bind the company, may now be registered with the CRO as a ‘registered person’. The board and any such registered persons will be deemed to have the authority to bind the company.
The Act introduces a majority written resolution, which can be passed as an ordinary resolution (50% or more of total voting rights – effective after seven days from date the last member signed) or a special resolution (75% or more of total voting rights – effective 21 days from the date the last member signed).
Unanimous written shareholder resolutions (which take immediate effect) are also still available to companies.
The Act provides for the correction of defective statutory financial statements. A company can prepare, approve, audit and file revised financial statements or revised director’s report in respect
of a prior year.
Ronan Reilly is Managing Director at TMF Ireland