Following decades of multiple pieces of legislation governing Irish Companies, we now finally have a single piece of legislation, The Companies Act 2014.
The Act does not only consolidate all existing pieces of legislation under one umbrella, but also creates two completely new company types and erases the existing Private Company Limited by Shares under the Companies Acts 1963 to 2013.
New Company Types
All companies limited by shares that were incorporated prior to 1 June 2015 in Ireland must convert to a new company type. The two new company types are Private Companies Limited by Shares (LTDs) and Designated Activity Companies (DACs). The decision to register as an LTD or a DAC will depend on what is best suited for the company in question and the purpose for which it was incorporated.
The LTD type company will enjoy the benefit of most of the innovations intended to simplify their administration. For example, it will have full legal capacity, it need not have an authorised share capital, it can appoint a sole director and it can dispense with the requirement to hold an AGM.
The DAC form of company is more similar to private limited companies which were incorporated prior to 1 June 2015. A DAC must have an objects clause, at least 2 directors and an authorised share capital.
Certain types of companies are obliged to convert to the DAC form. These include banks and credit institutions, insurers, semi-state entities and companies with debentures listed on an exchange.
A transition period since commencement of the Act has been provided for existing private companies to decide on their new company type and to arrange the relevant meetings and documentation to convert.
For those wishing to initiate conversion to a DAC the deadline to convert by way of ordinary resolution is 31 August 2016. The deadline for conversion to an LTD company ends on 30 of November 2016.
Consequences of Not Taking the Appropriate Action
All companies that have not converted by 30 November 2016 will automatically be converted by the Companies Registration Office to the new LTD form. Allowing the CRO to automatically convert the Company may appear a simple and easy solution, however, this is not the case.
Companies which have been automatically converted will not be issued with a new constitution. Given this, the company’s constitution will still refer to the obsolete Companies Acts and may even contradict current company law.
Furthermore, for companies that have not converted to DACs, the directors have an obligation to prepare a new constitution of the company before the end of the transition period.
If the directors do not act before 30 November 2016, they are in breach of the obligation set down by Section 60 of the Act.
As with any period of change, the decisions, impending deadlines and processes for Irish company conversion may appear daunting. It is advisable for companies to seek the support of professional advisors to ensure that the appropriate company type has been chosen and the conversion process is carried out correctly.