By George Kennedy, Senior Associate Solicitor, Corporate and Commercial Department
First conceived in 1998 the Companies Bill 2012 (the “Bill”) is one of the largest pieces of legislation ever to come before the Dáil. Its purpose is to consolidate existing company legislation and introduce legislative reforms. The Bill completed Report Stage and Final Stage in the Seanad on 30 September 2014 and is expected to become law shortly.
The purpose of this article is to briefly outline certain key elements of the Bill.
New Forms of Private Companies
Over 80% of all companies registered in Ireland are private companies limited by shares.
The Bill will see the creation of two new forms of private company in Ireland, which will replace existing private companies limited by shares.
These new forms of private companies will be known as:-
• Company Limited by Shares (“CLS”); and
• Designated Activity Company (“DAC”).
Following the enactment of the Bill every private limited company registered in Ireland will be converted into one of these two company types.
Key Features of CLS
It is anticipated that CLS will be the most common form of private company. Some key features of CLS include:-
• They may have between 1 and 149 shareholders (currently the maximum is 99)
• They may have 1 or more directors (currently the minimum is two)
• They must have a company secretary (who cannot also be the sole director)
• They will not have an objects clause (currently contained in the Memorandum of Association), as such companies will have full unlimited capacity
• They will continue to have a company seal.
There will be an 18 month transition period starting from the date on which the new Act is commenced. From that date all existing private companies limited by shares will be treated as DACs.
After the expiry of this transition period, by default, all existing private companies will become CLS and adopt the model constitution from the Bill (i.e. if companies do nothing prior to expiry of the transition period).
Companies can alternatively resolve, during the transition period, to become CLS adopting one of these three options during the transition period:-
• They may pass a special resolution adopting the model constitution from the Bill; or
• They may pass a special resolution adopting a tailored constitutional document, based on the model constitution contained in the Bill (directors have an obligation to prepare a new constitution that preserves members’ rights and obligations); or
• The company can deliver a statement to the CRO adopting their existing articles of association and certain aspects of their memorandum of association as their new constitutional document.
Existing private companies can choose to become a DAC by passing an ordinary resolution during the transition period. Such companies will continue to have an objects clause with a memorandum and articles of association.
Other Key Innovations in the Bill
A “Summary Approval Procedure” will be created to enable companies to approve actions which would otherwise be contrary to company law and/or prejudicial to the company’s shareholders or creditors.
Offences under company law will be categorised into category 1, 2, 3 and 4 offences, with corresponding penalties.
There will be a new procedure allowing for the preparation, approval, audit and filing of revised financial statements or directors’ reports in respect of a prior year. Directors’ accountability to auditors will also increase with the introduction of a director’s report to confirm that auditors have relevant information.
There will be an extension of audit exemption for dormant companies, DAC’s and companies limited by guarantee.
Codification of Directors’ Duties
Directors’ duties will be codified for the first time, drawing from current common law duties including:-
• To act in good faith in what the director considers to be the interests of the company
• To act honestly and responsibly in relation to the conduct of the affairs of the company
• To act in accordance with the company’s constitution, and exercise powers only for purposes allowed by law
• Not to use the company property, information or opportunities for his/her benefit unless expressly permitted by members or the company constitution
• To have regard to the members’ interests and the interests of the company’s employees
• To restrict the director’s power to exercise independent judgment unless expressly permitted under the company’s constitution
• Any loans made to a director if not in writing, are presumed to be interest bearing and repayable on demand.
If you require further advice please contact George Kennedy, Senior Associate Solicitor, Corporate and Commercial Department.
- All Irish private companies will be affected by the enactment of the Companies Bill.
- Consolidation of existing company law.
- Introduction of legislative reform.
- Creation of two new forms of private company in Ireland.
- Conversion of existing private limited companies.
- Codification of directors’ duties.
- Simplification of statutory approval processes.