Since the Companies Act 2014 commenced at the beginning of this month, M.G. Ryan and Co. have been busy advising a number of our clients on the implication for their businesses. We felt that it would be helpful to summarise the provisions of the Act which are of most practical significance for standard private limited companies.
New Types of Companies
All existing private limited companies will now be obliged to alter their legal form. They must choose to be (i) a Private Limited Company (“LTD”) or (ii) a Designated Activity Company (“DAC”).
One of the key objectives of the Act is to reduce administrative burden and simplify the rules and regulations applying to small companies in particular. The new LTD is ‘lighter’ on regulation.
Key Features of a LTD
- It only requires one Director;
- The Secretary cannot be the same person as the sole Director;
- It does not need to have a Memorandum of Association;
- It can dispense with the need to hold an AGM.
There are three ways in which an existing private company can become an LTD with the most straightforward being the submission of a special resolution, the new model constitution and form N1 to the CRO. A new electronic certificate of incorporation will then issue from the CRO.
In theory, failing to re-register could leave Directors open to an action taken by a shareholder or creditor for relief. However, a greater reason for re-registering immediately would be the fact that if a company does not file a new constitution, its publicly filed constitution will not match the new one-document constitution which is scheduled to the Act. Existing Articles will reference repealed legislation. Therefore, their Articles will be unclear and it is likely that any investor or bank will require the certainty of re-registration prior to advancing funds.
Our advice to clients has therefore been to be ‘opt-in’ to the new regime and therefore the lighter regulation by re-registering as a LTD straight away unless they specifically need to be a DAC (financial institutions and insurance companies, for example, must be a DAC.
This new type of company encompasses companies which have a specific object for which they are registered. They are very similar to the structure of existing private limited companies pre- 1st June. –two directors, objects clause, requirement to hold AGM unless a single member company etc. They include companies limited by shares or by guarantee. In addition to the examples above, charities, management companies, companies limited by guarantee include the types of companies which are envisaged to be DAC’s. A form N2 will be used to convert to a DAC.
Meetings, Resolutions and Audits
Ordinary and special resolutions of shareholders can now be passed by way of written resolution. An AGM or EGM is not required nor are all the shareholders required to sign a written resolution. This means that, instead of taking votes at a meeting, the resolution is circulated to all of the company’s members who are entitled to vote and signed by them along with a statement of whether they are voting for or against the resolution before being returned to the company. However, it should be noted that the resolution itself must be sent to every member who is entitled to vote. Written resolutions cannot be used for the removal of directors or the removal of an auditor. As stated above, the need to hold an EGM has been dispensed with for LTD’s.
Directors Duties and Regulations
Duties of Directors finally have a statutory footing. Please see the following link for a list of Directors Duties: http://www.irishstatutebook.ie/2014/en/act/pub/0038/sec0228.html.
A person not appointed a Director but who occupies the role of a Director will now be deemed a de facto Director. This means that there is now a statutory basis for treating such persons as Directors with respect to duties of Directors etc.
Directors still need to notify all interests in shares or debentures including interest held by those connected to them. However, this obligation no longer exists where it (when aggregated with shares held by spouses, civil partners and children) does not amount to more than 1% in nominal value of the company’s issued share capital carrying voting rights.
Loans to and from Directors
Subject to limited exceptions, the Act continues the current prohibition on the company making a loan to a director. However, the principal exceptions have been expanded. Additionally, where the company makes a loan or quasi loan to a director and the terms are not in writing or are in writing but are unclear, it will now be presumed that the loan is repayable on demand and will incur interest at the appropriate rate unless the director can prove the contrary.
Additionally, where a director or a connected person has made a loan to the company and the terms are not in writing it is presumed that the loan is not repayable on demand by the company. If it is proven that a director or connected person did make a loan to the company and the terms are in writing, partially in writing or entirely verbal and these terms are ambiguous it is presumed that the loan does not bear any interest, is not secured and ranks below the debt of any creditor.
Therefore, M.G. Ryan and Co. are strongly advising directors and connected persons that any loans made or received should be carefully documented in writing.
Summary Approval Procedure
Previously the Companies Acts set out a number of activities which were restricted unless a whitewash procedure was followed. This included, for example, financial assistance for the purchase of a Company’ own shares and loans to directors. Procedures and timeframes for each whitewash procedure differed significantly.
Instead of setting out individual procedures for each ‘restricted activity’, the Act provides for a single procedure which applies universally for validating restricted activities and this is known as the Summary Approval Procedure.
Minority oppression refers to the mechanisms available to minority shareholders for taking action against majority shareholders for unfairly prejudicing their interests. The rules under the new Act are largely the same as before. However, one difference is that the court is now expressly empowered to award compensation to a successful minority shareholder. Previously, damages could not be awarded.
Section 69 of the Act, now specifies that shareholders in a private limited company now only have 14 days to exercise the right of pre-emption on a new share issue. This was previously 21 days.
If you have any queries in relation to the new Companies Act 2014 or require any specific assistance for your business, please do not hesitate to contact Michael Ryan or Kevin Moore on (091) 564011 or firstname.lastname@example.org