COMPANIES ACT 2014 – Converting Company Type

The Companies Act 2014 commenced on 1st June 2015.  This act introduces a number of new company types however, the majority of private limited companies in Ireland are expected to adopt either the New Model Private Company (LTD) or the Designated Activity Company (DAC); these company types are governed by Parts 1 to15 and 16 respectively.

Companies-Act-2014While companies can decide between an LTD or a DAC it is expected that most will adopt the LTD model.   Some of the main advantages of an LTD are as follows:

  1. An LTD may choose to have one director; however the company will still require a company secretary as the Act forbids that sole director from also acting as the company secretary.
  2. An LTD has the right to dispense with the holding of a physical Annual General Meeting.
  3. LTD companies will replace their Memorandum and Articles of Association with a one document constitution.
  4. Ultra Vires (acting beyond the scope of powers granted by the company’s object clause) will no longer exist.
  5. While audit exemption limits remain unchanged, the Act does include the provision that companies now only need to meet 2 out of 3 of the criteria, as opposed to 3 under the previous acts.
  6. The company can pass majority written resolutions.

As outlined above, most companies in Ireland will adopt the LTD model, however some companies may wish to convert to a DAC if they want to retain Ultra Vires which will restrict the company to do only those acts set out in the company’s constitution (Memorandum and Articles of Association).  Furthermore, a DAC must retain 2 directors and cannot dispense with the holding of an AGM.  Such a company may be beneficial for Joint Ventures or Property Management Companies.

Adopting A New Company Type

While The Companies Act 2014 will not impact on the day to day operations of your business, company directors will be required to complete some administrative and company secretarial procedures surrounding the conversion of the existing company to either an LTD or DAC.  Under the new legislation, when adopting the LTD model, a company will be required to complete the following:

  1. Draft a one document constitution, to replace the current Memorandum and Articles of Association.  This constitution can be based on the current Memorandum and Articles of Association; however it will exclude the object clause or any non-compulsory clauses which prevent its alteration.
  2. Pass a special resolution adopting the above constitution.
  3. Submit the special resolution, along with a copy of the new constitution to the Companies Registration Office.

It should be noted that a meeting of members, of which 21 days’ notice has been given, will be required to propose or pass the above special resolution. If however a majority of members agree, the 21 days requirement may be waived. If a company is considering converting to a DAC such a special resolution should be passed on or before 31st August 2016.

Once the above has been completed the Companies Registration Office will issue the company with a new Certificate of Incorporation, with Parts 1 to 15 of The Companies Act 2014 now applying to the company.

A transition period of 18 months from the introduction of the act on 1st June 2015 has been provided to allow companies to adopt a new company type.  If at the end of this period a company has not taken steps to adopt either an LTD or DAC they will default to the LTD mode.

If you would like further information on any of the above or require assistance in completing the transition to either an LTD or DAC please do not hesitate to contact us on 061 208050 or email our Audit Partner Eoin Gallagher egallagher@hlbmgr.ie

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