Issue One Migration of Existing Private Limited Companies

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1 Issue One Migration of Existing companies act 2014 The Act 2014 (the Act ) came into effect on 1 June The Act has introduced significant reforms in company law in Ireland. The Act Update Series is an initiative of the Institute of Directors in Ireland in association with. It provides information on key areas of company law reformed by the Act. Under the terms of the Act, an existing private company limited by shares (an EPC ) has to decide, within a transition period of 18 months from commencement of the Act, whether to opt in to the new regime for a private company limited by shares (an LTD ) or opt out of that regime by becoming a designated activity company (a DAC ) or some other type of company that the Act permits (a DAC is the company type under the Act that most closely resembles an EPC although the administration of a LTD is more straightforward). The Registration Office ( CRO ) does not charge any fee for registering certain of the changes to company type outlined in this briefing. Key Features ¼ Unless expressly precluded from doing so, an EPC defaults to the new model form of company (the LTD) at the end of the transition period and is deemed to have a constitution in the form applicable to the LTD. Pending the end of the transition period, or re-registration as an LTD, the law governing an EPC will be that applicable to a DAC. An EPC can opt out of becoming an LTD by re-registering as a DAC or another company type. Where an EPC does not re-register, directors are obliged to file a new constitution extracted from the existing memorandum and articles of association. An EPC does not have to change its name during the transition period (unless it changes its company type). At all times (not merely during the transition period) the Act facilitates re-registration of one company type as another company type in procedures that are more flexible than under the previous law.

2 LTD or DAC? The table below outlines some key features of an LTD compared with a DAC. Some companies, such as banks, insurers, semi-state entities and companies with debentures listed on an exchange cannot become an LTD and therefore need to convert to a DAC or other company type. In other cases a decision is required as to whether the features of an LTD are attractive to a company and its members or whether another company type under the Act ought to be adopted. Dialogue is necessary between directors, members and other stakeholders (including lenders) as to the structure to be adopted and the timing of the conversion/re-registration. Company Limited by Shares It may have as few as a single director (but it must have a separate secretary). It may have from 1 to 149 members. It need not hold an AGM. It has a one-document constitution which replaces the need for a memorandum and articles of association. It does not have an objects clause because it has full unlimited capacity to carry on any legal business, subject to any restrictions in other legislation. It can claim eligibility for audit exemption (and dormant company audit exemption). It has limited liability and has a share capital. It may pass majority written resolutions. Name must end in Limited or Teoranta (ie it cannot claim an exemption). Designated Activity Company It must have at least two directors (one of whom may be secretary). It may have from 1 to 149 members. It need not hold an AGM if it has only one member; otherwise an AGM must be held. It has a constitution which includes a memorandum and articles of association. It has a memorandum in its constitution which states the objects for which the company is incorporated. It can claim eligibility for audit exemption (and dormant company audit exemption). It has limited liability and has a share capital or is a company limited by guarantee with a share capital. It can pass majority written resolutions unless constitution states otherwise. Name must end in Designated Activity Company or Cuideachta Ghníomhaíochta Ainmnithe unless exempt. 2 companies act update series ¼ issue one - april 2016

3 Converting to the New Model Private Company The Act provides for three ways in which an EPC can become an LTD: During the transition period a company can submit a special resolution, its new model constitution (discussed below) and form N1 to the CRO. Upon registration of the documents, the CRO issues a new certificate of incorporation. A company s directors can submit a form N1 together with its new model constitution as drafted by the directors. The directors must send a copy of the constitution to each member of the company. Upon registration of the documents, the CRO issues a new certificate of incorporation. The directors must ensure that the constitution does not alter the rights or obligations of the members of the EPC. The new constitution consists of the existing articles and also the provisions of its existing memorandum other than provisions that contain its objects or which provide for, or prohibit, the alteration of any of the provisions of its memorandum and articles. If, by the end of the transition period the private company fails to convert, the EPC is deemed to have become an LTD. The CRO will then issue a new certificate of incorporation to the company. The constitution will comprise of the existing memorandum (other than the provisions that contain its objects or provide for, or prohibit, the alteration of all or any of the provisions of its memorandum or articles) and the provisions of its existing articles. In all cases, the suffix Limited / Teoranta must appear in the company name so that any then-existing exemption to omit this suffix from the company name is lost. Constitution of an LTD The Act requires the constitution of an LTD to state: the company s name; that it is a private company limited by shares and registered under Part 2 of the Act; that the liability of members is limited; particulars relating to its share capital; the number of shares (at least one) taken by its original subscribers; and any supplemental regulations which it is adopting. While most of what was previously contained in the company s articles of association now applies by statute unless the constitution otherwise provides, companies need to review their articles of association and ensure that tailored provisions, such as those dealing with preemption on transfer, are included in the new constitution or that some provisions in the Act that only apply if included in the constitution are adopted (such as an indemnity for directors). Previously, many EPCs relied on the regulations of Table A from the previous Acts. Despite being repealed by the Act, the regulations of Table A can continue in force (and do so where the conversion process is that outlined above) provided they are not inconsistent with a mandatory provision of the Act. Where Table A refers to any provision of the previous Acts, that reference is to be read as being to the corresponding provision of the Act. The provisions of Table A may be altered or added to by means of a special resolution. 3 companies act update series ¼ issue one - april 2016

4 Converting to a DAC An EPC may opt out of the new regime as follows: If members pass a special resolution to convert to any other type of company (including a DAC), provided the requirements applicable to such a company as set out in the re-registration requirements of the Act have been satisfied. Up to three months prior to the expiry of the transition period, there are two reregistration options: an EPC may re-register as a DAC by passing an ordinary resolution (the consent of the relevant Minister will be required for a semi-state company); and an EPC must re-register as a DAC if a member or members holding more than 25% of the voting rights serve a notice in writing on the company requiring it to re-register as a DAC. Where an EPC does not re-register as a DAC before the end of the transition period (whether it is obliged to do so or not), one or more of its members holding not less than 15% of its issued share capital, or one or more creditors holding not less than 15% of its debentures, entitling them to object to alterations in its objects clause, may apply to court for an order directing the company to reregister as a DAC. Where the members pass an ordinary resolution to re-register as a DAC or where the directors resolve to re-register an EPC as a DAC (for example because a notice is served by qualifying members or it is ordered by the court or otherwise required), the effect is to alter the company s memorandum of association so that it states that the company is to be a DAC. The company must file the resolution, the new memorandum and articles of association and a form N2 with the CRO. The name of the company must include designated activity company (or the Irish language equivalent) unless the company is exempt from the obligation to do so. As with an LTD the constitution of a DAC can adopt in whole or part the statutory rules in the Act or continue to use its existing articles (including Table A of the previous Acts) provided they do not conflict with mandatory provisions in the Act. Protecting Members and Creditors If any member considers that his or her rights or obligations have been prejudiced by the exercise or non-exercise of any power under the parts of the Act dealing with conversion, or of its exercise in a particular manner by the company or its directors, the member may apply to court for an order under the minority shareholder oppression provisions of the Act. Creditors holding not less than 15% of the debentures of a company, entitling them to object to alterations in its objects clause, may also apply to court for relief. Action Required Directors of an EPC should engage in dialogue with relevant stakeholders to decide which of the company types permitted by the Act is most appropriate to the then-existing company s circumstances. Those directors and stakeholders should consider whether the constitution of the company should adopt the statutory rules or retain, as fully as possible, existing articles of association. The benefits of adopting the form of an LTD can only be availed of upon conversion of an EPC to an LTD, by express process or by the deeming provisions when the transition period ends. 4 companies act update series ¼ issue one - april 2016

5 List of Updates in the series Further Information Director Training The IoD can help you refresh your skills and improve performance as a director. For information on director development courses and workshops please contact Sheila Byrne on or sbyrne@iodireland.ie Books Directors Handbook (Second Edition) To order a copy of this publication please contact IoD Ireland on A Handbook for Directors of Regulated Financial Services in Ireland (Second Edition) To order a copy of this publication please contact IoD Ireland on Standards for the Board Effective Director To order these publications please telephone or visit Boardroom Centre The IoD operates the Boardroom Centre - a resource for companies seeking non-executive Directors and register for IoD members seeking directorships. For details please contact Thora Mackey on or tmackey@iodireland.ie ¼ Issue One April 2016 Migration of Existing ¼ Issue Two April 2016 Duties of a Director ¼ Issue Three April 2016 Directors - Transactions with the Company ¼ Issue Four April 2016 Board Meetings ¼ Issue Five April 2016 General Meetings ¼ Issue Six April 2016 Company Administration ¼ Handbooks June 2015 ¼ Directors' Handbook For further information on the Act, or related topics please contact the authors: ¼ A Handbook for Directors of Regulated Paul Heffernan Partner Peter Osborne Consultant Financial Services in Ireland ddi paul.heffernan@mccannfitzgerald.com ddi peter.osborne@mccannfitzgerald.com Frances Bleahene Professional Support Lawyer ddi frances.bleahene@mccannfitzgerald.com and Institute of Directors in Ireland All rights reserved. Institute of Directors in Ireland, Europa House, Harcourt Street, Dublin info@iodireland.ie