The Companies Act 2014 is the largest piece of legislation in the history of the State and will make fundamental changes to the way Irish companies are governed.
The Act came into effect on 1 June 2015 and business owners should prepare now.
The new legislation requires all existing private companies with shares to choose to become either a company limited by shares (CLS or LTD type-company), a Designated Activity Company (DAC), or another type or company such as a PLC. These decisions must be made within an 18-month transition period after the law comes into effect.
Consolidating 30 pieces of legislation – dating from 1963 to 2013 – into one act, the concentration is on private companies to reflect the way business is actually done in Ireland.
Paul Keane, chair of the Law Society of Ireland’s Business Law Committee, says, “The new Act aims to be more user-friendly and allow businesses to operate more efficiently. The changes are sensible and address the needs of Irish businesses.”
According to Mr Keane, “Previously, the focus of company law legislation was on the public limited company (PLC) but these form a tiny percentage of the businesses operating in Ireland. The 2014 Act has been designed with this in mind.”
“Every single business owner will have decisions to make as the new regime comes into effect, and they should seek solid guidance from their solicitor on the options available to them.”
Those operating small private companies who opt to convert to a LTD type – through which the majority of business in Ireland is conducted – will benefit from a number of changes, including:
- A simplified constitution, comprising a single document instead of a Memorandum of Association and Articles of Association,
- Only one director will be needed,
- May avoid holding Annual General Meetings,
- Unlimited capacity - removal of ultra vires rule whereby companies cannot operate outside of the activities laid out in the objects clause, and
- Codification of directors’ duties into eight rules.
There are also new rules to consider, including:
- The requirement that a company secretary must have the skills and resources for the role,
- Directors loans will be treated adversely; it will be important that proper loan agreements and board resolutions are in place,
- Directors will be required to confirm that all relevant audit information of which they are aware, having made reasonable enquiries, has been conveyed to the auditors,
- Directors will also need to consider what basic steps they should take to demonstrate compliance, and
- Compliance statements and audit committees for larger companies; directors have new obligations for securing compliance with certain company law provisions and tax law, and to consider whether to appoint an audit committee.
“Business owners must make sure they are prepared for the new legislation. They should seek advice from their solicitors to determine how their company can take advantage of, and comply with, the new legislation,” Mr Keane concluded.
Paul Keane is managing partner of Reddy Charlton Solicitors, a firm that specialises in commercial and property law. He is also the head of the Business Law Department of his firm. He advises companies, shareholders and directors on corporate law and corporate transactions and insolvency. He is chairman of the Business Law Committee in the Law Society of Ireland, a member of the Council of the Law Society of Ireland, chairman of the Swedish Chamber of Commerce in Ireland and Honorary Consul General of Sweden. He also serves as director and business adviser to a number of companies.