Matheson’s Pat English and Kieran Trant examine the Irish Companies Bill and explain what the new legislation will mean for businesses big and small.
The Irish Companies Bill 2012 will – once it comes into force in 2015 – introduce significant enhancements to Irish company law.
The Bill is designed to give Ireland a modern company law regime and is further clear evidence of the Irish Government’s continued commitment to making Ireland a leading location to do business.
The Bill, the largest substantive piece of legislation in the history of the State, brings together the existing 33 company law enactments into a single statute.
Anyone involved in running Irish companies, large or small, needs be aware of what the new legislation will mean for them and their company in practical terms.
Some of the key questions currently being asked in relation to the Bill are as follows:
1) With enactment of the Bill imminent, what steps should we take now?
You should at this stage be reviewing your organisational structure to identify any Irish companies, branches or places of business to assess how these will be impacted by the Bill.
You should identify which of your companies are limited and which are unlimited and which are public or private, as different rules will apply in each case.
You should also consider which of the new company types under the Bill will best suit the needs of your business.
2. What will happen to existing Irish companies?
The Bill creates new forms of Irish companies and recognises the continued existence of other company types. The principal reforms being introduced focus on private limited companies.
The Bill provides for two new forms of private limited liability company: the model private company limited by shares (LTD) and the designated activity company (DAC).
During an 18-month period following the Bill’s commencement, existing private limited companies may opt to become either an LTD or a DAC.
If, after this transition period expires, an existing private limited company has not opted to convert, it will automatically become an LTD.
Until the end of the transition period the law applicable to DACs will apply to all existing private limited companies.
3) Will companies still need a memorandum and articles of association?
Under the new rules, an LTD will have a simplified single-document constitution, replacing the current memorandum and articles of association.
Significantly, an LTD’s constitution will not have an objects clause and will therefore have unlimited corporate capacity.
A DAC will need a memorandum and articles of association and may be a suitable vehicle where an objects clause is needed (for example, in the case of a joint-venture vehicle).
4) How many directors will the new types of companies need?
An LTD may have a single director – as opposed to a minimum of two at present – but, in that case, it must have a separate company secretary. Other company types must have at least two directors.
5) Will the LTD and DAC still be described as ‘limited’ companies?
The name of an LTD will not change and must end with ‘limited’ or Ltd. A company that elects to become a DAC must include the words ‘Designated Activity Company’ or DAC at the end of its name.
All company stationery, intellectual property and other registrations, signage and product labelling will need to be updated.
6) How will the Bill impact unlimited companies?
While existing unlimited liability companies will continue in their current form following commencement, the Bill does introduce important changes for them.
Significantly, the statutory rules on distributions will not apply in the case of unlimited companies. Under the new regime, an unlimited company must continue to hold an annual general meeting.
One practical consequence of the Bill is that the names of all unlimited companies will be required to end with the words ‘Unlimited Company’ or UC. Again, all company stationery, intellectual property and signage will need to be updated.
7) How will the Bill impact annual compliance and corporate governance requirements for Irish companies?
In the main, the Bill keeps the existing requirements to file an annual return and, where appropriate, audited financial statements.
However, it also introduces a number of changes which will mostly tend to ease the administrative burden on Irish companies.
Under the new rules, an LTD will have a simplified single-document constitution, replacing the current memorandum and articles of association.”
The Bill does not envisage any substantial change to the law governing the holding of board meetings by Irish companies. However, in a useful development, a multi-member LTD will be permitted to adopt written procedures, instead of holding an annual general meeting.
New decision-making mechanisms for shareholders are being introduced allowing in certain cases for majority written resolutions in place of unanimous written resolutions required at present.
A simplified written approval process – the Summary Approval Procedure – will be introduced for certain restricted activities such as the provision of financial assistance for the acquisition of shares, the reduction of capital and the placing of companies into voluntary liquidation.
8) I am a director of an Irish company. Does the Bill include any changes to my duties and obligations as a director?
While the duties owed by Irish company directors will remain substantially the same following commencement, the Bill does codify, for the first time, eight principal fiduciary duties of directors previously set out by judgments of the courts.
The Bill also imposes an express duty on all directors to ensure that the company secretary has the requisite skills to competently discharge his or her duties or has the necessary resources to do so.
Most significantly, the Bill imposes an obligation on directors of public limited companies and certain large private limited companies to produce in their annual directors’ report a compliance statement with company and tax law and to ensure that the company adopts appropriate compliance measures.
Notably, this obligation will not apply to unlimited companies.
The Bill contains a new exemption from what is a disclosable interest in a case where the shares or share options held by a director or secretary amount to less than 1% of the company’s issued share capital.
This should substantially reduce and, in many cases, eliminate the disclosure obligations for directors and secretaries.
9) When will the new laws come into force?
The Bill is currently in the final stages of the legislative process with only technical amendments expected to be made prior to enactment. It is expected to be enacted before the end of 2014 and to come into force in mid-2015.
The above is merely a brief overview of some of the principal changes the Bill will introduce. There are many more significant changes and businesses should consult, where appropriate, with their legal, tax and accounting advisors for assistance with assessing how the Bill will impact their business operations.
More information and updates on the Irish Companies Bill are available at matheson.com.
