Claire Lord examines governance reforms in the new Companies Bill and what these will mean for private limited companies in Ireland.
The Companies Bill 2012 will bring significant reform to the Irish law of private companies. When it comes into force, the Bill will consolidate the current 16 Companies Acts − and many of the related statutory instruments − into a single, comprehensive statute. The Bill is aimed at making it easier for companies to conduct business in Ireland.
Every private limited company will have to prepare for these changes by choosing to register as either a designated activity company (DAC) or a new form of the private company limited by shares (CLS). This migration must take place within 18 months of the Bill gaining force of law. Companies that do not take any steps to adopt one of these new structures will automatically become a CLS.
The CLS
Perhaps the most radical reform proposed by the Bill is the prominent focus on the CLS. The CLS will have a single-document constitution with no objects clause meaning that a CLS will effectively have the same legal capacity as a natural person.
Other governance reforms that will apply to the CLS include:
• A CLS will be permitted to have only one director;
• A CLS will have the power to dispense with the holding of AGMs including where the CLS has more than one shareholder; and
• The shareholders of a CLS will be able to pass majority written resolutions meaning that a written resolution will not require unanimity to be passed (subject to some remaining inconvenient features).
The DAC
The DAC will be a more familiar type of company. Its activities will be limited by its objects clause and its constitution will comprise a memorandum and articles of association. Not all of the ‘streamlined’ governance reforms that will apply to the CLS will apply to the DAC.
There are a number of governance reforms that will apply to all company types:
- Directors’ duties: For the first time, the duties of directors will be set out in statutory form. The principal effect of listing directors’ duties in the Bill will be to act as a signpost as to the standards of conduct that the law requires of directors. Also, given that the origin of these duties is in common law and equity they are not intended to be exhaustive.
- Director’s compliance statement: Following enactment of the Bill, directors of large companies will be required to give a compliance statement on compliance with company law and tax law in the directors’ report that accompanies the annual audited accounts. In the statement the directors will be required to:
– Acknowledge that they are responsible for securing compliance with the company’s obligations under the Companies Bill the breach of which gives rise to an indictable offence and the company’s obligations under tax law;
– Confirm that a statement has been prepared setting out the company’s policies in respect of compliance with those obligations;
– Confirm that the company has in place arrangements designed to achieve compliance with those obligations; and
– Confirm that the directors have reviewed the effectiveness of those procedures during the financial year to which the report relates.
Worth noting is also the fact that this is a ‘comply or explain’ requirement. Therefore, a company will not be required to have a compliance policy statement but if it does not, it must explain why not.
The Companies Bill 2012 was passed by Dáil Éireann in early April 2014 and at Committee State in Seanad Éireann in June 2014.
Progress towards enactment should be tracked so that directors are ready to commence migration to the chosen company type during the transition period.
Regular updates are posted on the dedicated Companies Bill page on the Mason Hayes & Curran website.
