When the Companies Act 2014 came into force on 1 June 2015, it introduced a new company type into Ireland – The Designated Activity Company (DAC).
The main difference between a DAC and a Private Company Limited by Shares (LTD) is the objects clause in the company’s constitution, which specifies a Company’s business activity. DACs have an objects clause in their Memorandum of Association which defines their area of business specifically, while LTDs have no such clause in their more simplified company constitution and therefore have unlimited powers to amend and pivot their business activity.
The Designated Activity Company – Increased Control
The DAC was created with certain company types in mind, including charities, management companies, companies limited by guarantee and companies incorporated for a specific purpose for which the shareholders wish to be clearly defined.
A DAC must have at least two directors whilst a LTD may have only one. It should be noted that a LTD company must still have at least two officers as a Company Secretary is also mandatory. It is not possible for the sole director to act in that role (in a DAC a director may also fulfil the role of Secretary).
Limited Company – Increased Simplicity
The LTD is designed to simplify company administration and is therefore more popular with new start-ups. Another simplified rule which LTDs benefit from is that they are not required to have an authorised share capital. By not having an authorised share capital it is easier for LTD to issue new shares in return for capital contributions – which are vital for companies to grow.
It is possible for DAC to amend their share capital, but it involves the holding of a shareholders meeting and filing documents with the CRO.
LTDs can also forgo the holding of an Annual General Meeting (AGM) once all the shareholders agree and sign an annual resolution approving matters which would have taken place at the AGM (such as the review and approval of Financial Statements). It should also be noted that if there is only one shareholder in a DAC then they may also dispense with the requirement to hold an AGM
With this increase in simplicity, the LTD does sacrifice some functionality, specifically in relation to securities.
Unlike DACs, an LTD cannot list securities, including debt securities or equity securities. This means that LTDs cannot loan money in return for rights to a property or bonds. As a result, it is not possible for LTDs to operate as credit institutions or insurance companies.
The LTD is a more simplistic company structure which does away with certain control regulations which can be unnecessary, especially in small companies and new start-ups. The cost of this decrease in regulation is a reduction in shareholder control and the loss of some functionality, which are both present in the DAC.
In conclusion, both structures serve unique purposes and the suitability of either will depend on the purpose of a new incorporation and the needs of the directors and shareholders.
This blog is intended to act as an introduction to Irish company structures only, if you have queries or require specific information, please contact us for professional advice.