Changes to the Companies Act – What You Need to Know
The Companies Act 2014 comes into effect in June but despite this many businesses are not ready. A recent survey by the Institute of Directors in Ireland found that 35 percent of directors of companies with fewer than 100 employees were prepared.
What do you need to know about the Companies Act 2014? Here are some of the key points.
What Is It?
The Companies Act 2014 is designed to make doing business in Ireland easier. At its core it is a consolidating piece of legislation as it takes 17 different acts created over the course of 50 years and consolidates them into one.
Unsurprisingly it is big – 25 parts, 1,448 sections and 17 schedules. But within that there some key things you need to know.
Company Structure and Governance
One of the biggest changes is the creation of two main types of company. The first is a new model company – a Private Company Limited by shares, or LTD. Under the new legislation it will be possible for this sort of company to have just one director. This is a change from the previous requirement to have at least two directors. Also the two-document Memorandum & Articles that was required previously by all limited companies has been replaced with a simplified, single document constitution (the objects clause is removed as are provisions that prohibit the Memorandum & Articles being changed). And there is no longer a requirement to hold an annual general meeting.
The other main type of company is called a Designated Activity Company, or DAC. Its structure will look more like the structure of companies before the new Companies Act – at least two directors, two document constitution etc.
Some companies will have to register as a DAC. Examples of this are regulated financial institutions. Most businesses, however, can choose which entity best suits them. There are a few practical things to remember when considering which of the options is the right choice for your business:
- If you change to the new LTD company you can keep your existing name
- If you change to a DAC your name will change
- Some companies have to change to a DAC
- If you do nothing your company will be regarded as a DAC for the transition period of the new Companies Act (which lasts for 18 months from 1 June 2015). After the transition period your company will be considered a LTD company under the new definition.
The new Companies Act also outlines three other main types of company or entity:
- Unlimited Company (UC)
- Public Limited Company (PLC)
- Guarantee Company (CLG) – mostly for use by charities, sports clubs and social clubs
Other Changes in the Companies Act 2014
Other activities have been simplified by the Companies Act 2014. For example, it is no longer necessary to get High Court approval for things like capital reductions or solvent windings up. Instead this can be done through a directors’ declaration and a shareholders’ resolution. It is also now possible for private companies to merge or split up without getting approval from the courts.
Large LTD companies and PLCs will have to produce a Directors’ Compliance Statement, while there is a clear encouragement in the act that loans to directors should be clearly documented on company accounts. Also there is a codification of directors’ duties in the act which sets out eight fiduciary duties. This clarifies the responsibilities of company directors.
In general, the purpose of these changes is to reduce the cost and complexity of running a company, although there may be some initial costs for some businesses – to amend a company’s constitution for example.
The Companies Act 2014 commences on 1 June, 2015. There is an 18 month transition period to allow you to adapt to the changes, but the best advice is to act now.