Everything your business needs to know about the new Companies Act
The Companies Act 2014 came into effect at the beginning of this month and makes far reaching and fundamental changes to Irish company law.
The Act is the largest piece of legislation in the history of the State. At around 1,200 pages and 1,500 sections, it represents a comprehensive and coherent restatement and reform of Irish company law, consolidating 30 pieces of legislation dating from 1963 to 2013.
The Law Society is implementing a major campaign of education, publication and know how to facilitate the benefits of the new Act being made available to Irish business.
The new Act reflects the reality of Irish business as it is today. Business in Ireland is predominately conducted by small private companies and only a tiny percentage by public limited companies (PLCs). Our old law was based on the needs of PLCs. By concentrating on the private company, this new legislation aligns company law to how business is actually done in Ireland.
New types of private company
The Act describes in an accessible manner the life, activities and demise of a company. It takes as its starting point a private company limited by shares and using the word 'Limited' or 'Ltd' as part of its name.
The Ltd will have a simplified constitution, no objects clause and it will allow a company to operate with only one director and one shareholder. The Act also recognises that AGMs and other meetings are frequently a mere paper fiction. Thus, it allows a Ltd to operate without a physical AGM. Significantly, Ltds will also have full capacity to conduct any business or transaction.
The second type of private company is a Designated Activity Company or a DAC; a company that is required to focus on a particular business. There will be a requirement for two directors and measures are available to confine the DAC to its designated activity.
PLCs, Unlimited Companies and Companies Limited by Guarantee will largely continue to exist as they always have been, with some limited changes (especially in relation to the requirement for directors' compliance statements for PLCs and larger private companies).
Benefits for business
The new law will make a number of sensible changes, in addition to those mentioned above. These will remove a large number of irritating obstacles and traps:
• Directors' duties will be codified making the law more transparent and accessible.
• Irish companies will have full capacity, and the directors will have power to exercise any power of the company. The ultra vires rule (and the resultant complications) so beloved of lawyers will be no more.
• A Ltd will be able to engage in domestic mergers similar to those which are currently only possible in the case of cross-border mergers. No court order will be required. Two Irish companies can merge so that the assets, liabilities and identity of one are transferred to the other.
• Guarantee companies and dormant companies may be audit exempt.
• A Ltd will only have to have a single-document constitution instead of a Memorandum of Association and Articles of Association.
• Small companies will be able to apply to the Circuit Court instead of the High Court to enter examinership.
Navigating the change
The Act establishes a regime that allows existing private companies to migrate to the new corporate forms with minimum disruption. During a transition period of 18 months, a private company limited by shares will choose to become either a Ltd or a DAC.
Most companies will choose the Ltd form. A new constitution will need to be established, which is relatively straight forward. Companies can opt for an earlier changeover and it is likely to be useful to do so. There is also a facility to change back, should they change their minds.
In the great majority of cases, unless the company has converted earlier to an Ltd, the company will be deemed to be an Ltd at the end of the transition period, and the directors must prepare and file a new constitution.
The Law Society has made available to solicitors the necessary tools to help their clients make the transition efficiently and easily.
There are other new rules to consider including:
• The requirement that a company secretary must have the skills and resources for the role.
• Director's loans must be documented to avoid being treated unfavourably. It is important that proper loan agreements and board resolutions are in place.
• Directors will be required to confirm that all relevant audit information, of which they are aware, having made reasonable enquires, has been conveyed to the auditors.
• Compliance statements and audit committees will be required for certain larger companies.
What business owners need to do
Business owners need to take steps now to ensure they are compliant with the new rules and that they are taking advantage of the opportunities presented by the Act.
• Decide whether or not you are happy to convert to an Ltd or a DAC.
• Review the Memorandum and Articles of Association and consider how the new standard constitution should be adjusted to suit your requirements.
• Put proper agreements in place to document director's loans.
• Put in place a system to show that directors have made proper enquiries to identify relevant audit information and to disclose that information to the auditors.
• Consider whether you are up to speed on your duties as a director or owner of a company and get professional advice if you are not.
• Consider whether your company secretary needs help to do the job properly.
Seize the opportunity
The Companies Act presents an efficient, world-class company law infrastructure, suited to the needs of Irish business. The new structures will reduce much of the risk and costs associated with our current regime.
If you are a director or shareholder in an Irish company, ask your solicitor how to use these new rules to run your business more effectively.
Paul Keane is managing partner at Reddy Charlton and also chairs the Business Law Committee at the Law Society of Ireland
Sunday Indo Business