This note sets out a summary of some of the key changes in company law that came into effect on 1 June 2015 that may be of relevance to you. You will need to take specific advice on how the legislation affects you and your business.
Focus on the Private Company
Up to now, our company law was based on the needs of large public limited companies, but the great bulk of Irish business is done by small private companies. The new law focuses on the private limited company with shares and simplifies the law.
Company Law as you have known it, but made easier
The law in relation to companies remains substantially the same, but there are some significant changes. Directors have new obligations and exposures
There will be a transition period of 18 months. During that time, existing private companies with shares will choose to become either a company limited by shares ("LTD") or a Designated Activity Company ("DAC"). The form most likely to be chosen is a LTD.
It may be useful to convert earlier and that option is available.
In the great majority of cases, unless the company has converted earlier to a LTD, the company will be deemed to be a LTD at the end of the transition period, and the directors will be required to prepare a new constitution in accordance with the Act, to give it to the shareholders and to file it in the CRO.
Companies limited by shares
A company limited by shares (LTD) will have a number of advantages:-
- full capacity (the existing rule of ultra vires will no longer apply);
- needs only one director and shareholder;
- a simplified constitution;
- no need to change the company name or stationery (it will continue to include "limited" or "ltd")
An LTD has a choice of over 150 provisions in the Act that will apply unless the Constitution modifies them. There are also important "opt in" provisions that need to be adopted by the company if they are to be available to it.
The constitution of a company will need to be properly drafted, if it is desired to take advantage of these options.
Companies Some companies will have to, or may choose to, become a Designated Activity Company, where the company is limited to carrying on a specific activity.
The formalities associated with a great number of transactions will be easier: written majority resolutions, approval of some transactions (such as loans to directors or the company giving financial assistance for purchases of its own shares), and AGM business in writing. However, this is balanced with increased exposure for directors where the new approval procedures are used.
Directors' duties codified
Judges have, over the years, decided what are the fiduciary and care duties of directors. These are now restated and codified in eight rules. These include the obligation to act in good faith in what the director considers to be the interests of the company and to act honestly and responsibly. The Act imposes an objective standard of care, skill and diligence on a director. There are also a number of rules dealing with the diversion of the company's property information or opportunities and conflicts of interest. Usefully, however, the Act allows the company to relax certain elements of these rules.
We have become familiar with the restrictions on companies making loans, in favour of directors or connected persons. There is a new simplified procedure for approving or whitewashing such loans.
However, it is important that properly drafted loan agreements are put in place, because, under the new rules, undocumented loans between a company and a director/connected person are to be treated adversely.
Each director will be required to confirm that all relevant audit information of which they are aware (having made reasonable enquiries) has been conveyed to the auditors. This is a significant additional responsibility. Directors will need to take advice on what steps they need to take to ensure they comply.
Compliance Statements and Audit Committees
The directors of a company or group with a balance sheet total of €12.5m and turnover of €25m will have new obligations for securing the company's compliance with company and tax law. These include the directors drawing up a compliance policy statement and reporting on what has been done to secure compliance. For even larger companies (balance sheet total €25m, turnover €50m), the directors must consider the establishment of an audit committee).
If you think any of this applies to you, please talk to us about what needs to be done.
Mergers and Divisions
There are new arrangements which will make it easier to merge companies or to split the business of an Irish company. This may be a useful device in dealing with family succession or in the disposal of part of the business conducted by a company.
What you should do
- Decide whether or not you are happy to convert to a LTD or a DAC.
- Review your Memorandum and Articles of Association and consider how the standard constitution should be adjusted to suit your requirements.
- Put proper agreements in place to document directors' 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.
- Check your agreements to see if changing the company's constitution will require the consent of other parties.
- Consider whether you are up to speed on your duties as a director or owner of a company and contact us if you need an update.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.