Since our last newsletter, the Companies Act 2014 came into force on 1 June 2015, triggering conversion requirements for all existing companies.
The Obligation to Convert
The Act provides for a transition period of 18 months from 1 June 2015, during which time all existing private limited companies will have to either:
- convert to a Company Limited by Shares (“LTD”) during the 18 months; or
- convert to a Designated Activity Company (“DAC”) during the first 15 months of the transition period.
You need to decide which is the best structure (e.g. LTD or DAC) for your company based on your business needs. We can assist you with your decision and advise you on the conversion process and the registration requirements.
During the 18 month transition period, or until you actively convert your company, all existing private limited companies will be regarded as DACs.
LTD or DAC? How to decide?
- Possible to have one director and one member.
- Memorandum and Articles of Association will be replaced with a single constitutional document.
- An LTD will be able to dispense with holding a physical AGM, irrespective of the number of shareholders.
- Company name must end with “Limited” or “LTD”.
- More like the existing private limited company.
- Continues to have objects clauses detailing its permitted activities.
- Will be able to list debt securities for offer to the public, unlike the LTD.
- Company name must end with “designated activity company” or “DAC”.
- Must have at least two directors and where there is more than one member it cannot dispense with AGM’s.
The Conversion Process
How to become an LTD
An existing private limited company can become an LTD:
- By the members passing a special resolution adopting a new constitution and delivering it to the CRO;
- If the members fail to adopt a constitution, the directors are obliged to draft a one document constitution based on the existing memorandum and articles of association and deliver a copy to each member and to the CRO; or
- Where neither the members nor the directors take any action (in breach of their statutory obligations), on the expiry of the transition period, the company will be deemed to have a one document constitution comprising its existing memorandum and articles (except its objects clause and save as amended by the Act) and to have become an LTD.
How to become a DAC
An existing private limited company limited can become a DAC by:
- Passing, within 15 months of 1 June 2015, an ordinary resolution that the company be re-registered as a DAC; or
- Alternatively, without waiting for the directors to call an EGM, a member holding more than 25% of the voting rights can serve a notice in writing on the company requiring it to re-register as a DAC.
Remember, if a company re-registers as a DAC, it will have to change its name. The Company will need a new company seal, new stationery, to amend its website and issue new share certificates.
And what if I do nothing?
If a company fails to actively re-register within the 18 month transition period it will default to an LTD after 18 months.
It might seem easier to convert by default if you feel an LTD is ultimately the right option for your company. However, this is not necessarily the case.
We encourage directors to initiate discussion with members on the best option for their company immediately.
Directors risk having members complain that their rights have been adversely affected for failure to adopt a tailored one document constitution.
Can I change my mind?
Companies which have converted to an LTD or DAC can, if they wish, subsequently re-register as another company type.
Should you have any queries in relation to the conversion process, or any matter under the new Companies Act, please contact a member of our Corporate and Commercial Department.
The Companies Act 2014 came into force on 1 June 2015, triggering conversion requirements for all existing companies.