The Companies Act 2014 - A Game Changer

The Companies Act 2014 - A Game Changer

The Companies Act, 2014 is due to come into effect on the 1st June, 2015.  It will fundamentally change how companies are structured and how company law operates.  Its stated purpose is to simplify and modernise Company Law in Ireland. 

New Forms of Company

Most companies registered in Ireland are private companies limited by shares.  This form of company will be discontinued.  The act introduces a number of new company types.  Existing companies will face a decision as to which new form they wish to adopt.  Doing nothing is not an option.  In most cases the choice will be between:

-       a private company limited by shares (LTD) and

-       a designated activity company (DAC).

 

 

 

Private company limited by shares (LTD)

In many ways the new LTD is a simplified form of the existing private company limited by shares.  Key features include:

•It will no longer be necessary to have a minimum of two Directors.  The Act has retains the requirement that where a company has only one director, that director cannot also act as company secretary.  There is a specific obligation on directors to ensure that the company secretary is suitably qualified.

•Dispensing with the need to hold a physical AGM.

•The current Memorandum & Articles of Association must be replaced by a new Constitution.

•It does not require an objects clause.  This means it will have full and unlimited legal capacity to undertake any business or activity in the same way as a natural person.

It is thought likely most existing companies will opt to become LTD companies.

Designated activity company (DAC).

The DAC is similar in form to the exiting private company limited by shares.  It will still require a minimum of two directors and a two document Memorandum and Articles of Association.  It must not act outside the powers given in these (“ultra vires”) and must continue to hold a physical AGM (unless it is a single member company).

The DAC is likely to appeal to people who want to ensure that the company in which they have invested continues to only carry on the business it was intended to carry on (e.g. minority shareholders, investors and venture capitalists).

New Rules for Directors

Being a director already carries heavy responsibility and significant personal exposure.  Things will not get easier under the new Act which introduces stricter rules with new offences including some carrying fines up to €500,000 and/or 10 years imprisonment.

Directors are responsible to ensure compliance by the company with the Companies Act.  In addition to their other responsibilities section 228 of the Companies Act 2014 sets out eight principal fiduciary duties of directors:

•To act in good faith

•To act honestly and responsibly

•To act in accordance with the company’s constitution and to exercise those powers only for lawful purposes •Not to use company property unless approved by the members or the company constitution

•To exercise independent judgment unless permitted by the constitution or unless it is in the company’s interest to do otherwise

•To avoid conflicts of interest

•To exercise care, skill and diligence and

•To have regard for the interests of members as well as employees

A much tighter enforcement regime is to be expected and the need for directors to focus their minds on compliance and the responsibilities of their role as directors will come even stronger to the forefront.

Transition Arrangements

There will be an 18 month transition period to allow companies regularise their positions.

For further information or assistance on the new regime please contact Thomas Barry, Thomas Barry & Company, Solicitors, 11 St Stephens Green, Dublin 2 at 01 6773434 or This email address is being protected from spambots. You need JavaScript enabled to view it.

Author Bio: Thomas Barry is a Partner in Thomas Barry & Company, a legal practice based in Dublin. He has over 30 years experience. He regularly writes on legal issues.

 

 
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