Q I run my business through a limited liability company and just heard about the new Companies Act 2014. I understand that it runs to hundreds of pages. What are the important issues that might affect me?
You are correct. The new Act runs to almost 1,500 sections and whilst its object was to simplify the law it is still a very complex piece of legislation and any steps you might need to consider will have to be taken in consultation with your company’s Solicitor and Accountant. It is not the most exciting piece of law ever drafted so please bear with me!!
The Companies Act 2014 came into effect on the 1st June 2015 and allows an 18 month transition period to facilitate existing Companies migrating to the new structures. Existing Private limited companies have between 15 and 18 months from the 1st June 2015 to become either a LTD (private limited company) or a DAC (Designated Activity Company). Existing Companies Limited by Guarantee also have 18 months to add “Company Limited by Guarantee” to their company name.
The Act simplifies certain company procedures, codifies the fiduciary duties of Directors and provides for a number of different type of Companies;
Private company limited by shares- (known as a CLS and using “Ltd” after the company name)-
Companies already registered as private limited companies who do not opt to migrate to any of the other forms of companies will automatically become a CLS on the expiry of the 18 month period. During this transition period the rules which apply under the Act to a DAC company will also apply to a CLS if it has not converted.
The existing company may, during the transition period, convert to a CLS by passing a special resolution to adopt the new constitution and filing a form with the Companies Registration Office. The company will not need to change its stationary and can continue to describe itself as “ltd” or “limited” after its name.
A new CLS will no longer require a memorandum and articles of association as a single document constitution is prescribed by the Act-this will give the CLS unqualified legal capacity so it will not be restricted to those activities which would have come within its principal objects clause in its memorandum of association.
The CLS may have only 1 director (previously 2) although it will still need a separate person to be the company secretary.
The CLS will be entitled to avail of a number of simplified procedures under the new Act such as the ability to pass and file written resolutions on a number of important issues.
The CLS may also avail of an audit exemption (subject to certain thresholds).
Designated Activity Companies (DAC)-
There are two types of DAC under the Act.
(i)The first type is the private company limited by shares which resembles most closely the existing private limited company. If an existing private company limited by shares wishes to become a DAC then it must re register with the Companies Office as a DAC.
(ii)The second type is a private company limited by guarantee but having a share capital. An existing company limited by guarantee (eg. Many sporting organisations) will continue to be DACs limited by guarantee.
The principal difference between the new CLS and the DAC is that the DAC will continue to have a constitution with an objects clause. It is therefore most likely to be used by a business which has been set up for a specific purpose or for a joint venture. There are also some businesses such as banks and insurance companies which cannot be a CLS and must re register as a DAC.
The DAC must have at least 2 Directors.
It may also, subject to conditions, pass unanimous and majority resolutions in writing without the requirement to hold meetings.
It may also, subject to thresholds and conditions, avail of audit exemptions.
Within the 18 month transition period the Directors of an existing company may convert to a DAC by passing a resolution and filing certain documents in the Companies Registration Office.
Companies limited by Guarantee (a CLG)-
This is the type of company which will be most commonly used by charitable and professional bodies.
Existing companies limited by guarantee without having a share capital will automatically become a CLG at the end of the 18 month transition period but must, within that time period, change its name to add the words “company limited by guarantee” or “CLG” after its name.
The CLG must have a minimum of 2 Directors who must retire by rotation.
The CLG cannot use the simplified procedures under the new Act available to a CLS to pass and file written resolutions without meetings.
It may avail of audit exemptions but only if no member objects.
Unlimited companies (a ULC)-
These type of companies place no limit on the liability of members so if the company fails then creditors may pursue the shareholders in respect of liabilities without limit.
The Act provides for 3 separate types of ULC
(i) a private unlimited company
(ii) a public unlimited company with share capital and
(iii) a public unlimited company without a share capital
An unlimited liability company must add the words “unlimited liability company” of “ULC” to its name
The ULC must either adopt the new form of memorandum and articles of association prescribed by the new Act or alter its existing constitution to comply with the Act. This means that the ULC only has capacity to carry out the activities allowed by its constitution although the Act does allow a process by which a ULC may subsequently ratify actions undertaken outside of those allowed by its constitution.
As you will have gathered by reading this article, when a piece of legislation is passed to “simplify” the law then it very often makes it seem more complex!! It is such a technical piece of legislation that you should consult with your Solicitor or Accountant before taking any steps to comply with the Act.
Val Stone is the Managing Partner of Stone Solicitors, The Bull Ring, Wexford and Specialises in Commercial Property, Residential Property and Commercial Law.
Stone Solicitors can be contacted on 053 9146144, by email at email@example.com or via it’s website at www.stonesolicitors.ie