Only 3,000 out of 160,000 firms have made changes to date
Just over 3,000 out of 160,000 private Irish firms have updated their company status to come into line with the new Companies Act, according to new statistics.
The Companies Act came into effect at the start of June. Its main function was to simplify the rules that businesses need to comply with, consolidating the previous 17 Companies Acts and related Company Law provisions into a single comprehensive code.
Under the new act, which is the single largest piece of legislation in the history of the State, businesses have the option of registering either as a private limited company (LTD) or a designated activity company (DAC). The main difference between the two is that LTD companies have a simplified governance structure.
Some of the differences include the fact that LTD companies only need one director whereas DACs need at least two, DACs must have an authorised share capital while LTDs do not and LTDs usually do not need to hold annual general meetings, whereas DACs usually do.
Nearly 90pc of the 190,560 registered companies in Ireland are LTD firms. With the passing of the Companies Act the 160,000 private limited companies currently on the Register will operate under the rules applying to a DAC until they convert.
The remaining 30,000 businesses are made up of companies such as PLCs, companies limited by guarantees and unlimited companies.
So far, of the 160,000 private limited companies currently on the Register only 3,043 have converted to either a LTD or a DAC since the Companies Act came into force.
Businesses have until the end of November 2016 to decide whether to convert to an LTD or a DAC.
By the end of the transition period unless a company goes through the conversion process to become a DAC, they will be deemed instead to become an LTD.
So far only 3,043 have converted to either an LTD or a DAC. Legal firm LK Shields said that this is reflective of a "slow response to this requirement, running at just 760 companies per month since June.
"Directors of companies would be advised to start considering these options and consult with their shareholders with a view to making the decision sooner rather than later."
Out of the 6,324 new firms who have registered since the commencement of the Act, 5,886 are LTD companies, 284 are DAC companies while the rest are limited by guarantee or plc's.
LK Shields said: "The trend towards the new LTD company continues when we analyse the breakdown in new companies incorporated since the commencement of the Act. We would expect this trend to continue."
It added: "We also note that new incorporations are running at the same rate as last year and with the apparent upturn in the economy we would expect this to continue and hopefully increase over the next 12 months."
Alan Browning, head of the companies secretarial compliance unit, said that companies should not delay and should look to update their status as soon as possible.
"The companies office has said that switching is free during the transition period [so] we recommend that companies should act sooner rather than later," he said.
"If companies don't do anything it may give rise to governance issues as existing articles in their constitution may conflict with the Companies Act."