When the Companies Act 2014 becomes law, there will be an 18-month transition period, during which the vast majority of companies in Ireland will have to make some changes to ensure compliance. Siobhan Kenny BA Mod Leg Sci, Hussey Fraser, outlines some of the key implications of the Companies Act 2014.
The Companies Act 2014 has not yet been passed but it is expected that the relevant Minister will commence the operation of the Act in June of this year. However, it has not yet been commenced and, therefore, for the moment there is no need for anybody to do anything except to prepare. The Companies Act 2014 completely replaces all existing company law, which at the moment is governed by the Companies Acts 1963 to 2013.
At present, companies are subject to a substantial number of rules and regulations as to how they conduct their business – most of those rules come from the vast array of legislation which has been passed since the ‘Principal Act’ in 1963.
One of the main purposes of the 2014 Act is to streamline all of that legislation, make it easier to find, easier to read and easier to understand. In line with that aim, the drafters have also taken the
opportunity to strip away some outdated and unnecessarily complicated corporate structures, all with the aim of eliminating at least an element of red tape, and making it more straightforward for
business proprietors to make informed decisions about how they want to conduct their business. Once the 2014 Act becomes operative, there will be a transition period of 18 months. During that 18-month period the vast majority of companies registered in Ireland will have to make some changes. It is estimated that 90% of the companies incorporated in Ireland are private companies limited by shares. Each of these companies will have to decide whether it wishes to be a ‘CLS’ or a ‘DAC’, and take some relatively straightforward measures to convert.There are pros and cons, as you might expect, but it is anticipated that 90% of all private companies limited by shares will elect to become CLS companies. The main advantage of such an election is that a CLS company will keep the word Ltd in its title, will be authorised to carry on any business – without reference to an objects clause – may be a single shareholder/single director company, and will not need to have an AGM.
DAC companies are companies which are established for a specific or designated purpose, and will continue to have an objects clause, setting out that purpose. Under the legislation, most companies will have the option to be a CLS or a DAC, but for others (a very limited number carrying out defined functions) CLS will not be an option – hence the availability of DAC-type structures.
If a company does nothing, then it will be deemed to have selected to convert the company from its existing position into a CLS company. That may well suit; however, it is important that business
owners become aware of the principle terms of this legislation so that they can make informed decisions. The drafters have also taken the opportunity to set out a comprehensive list of the duties, which a director owes to his/her company, to its shareholders, and to the third parties, which conduct business with the company. None of these duties are necessarily new but, until now, they have been identified through a series of court cases and judicial interpretations.
Enforcement has, for a number of years, made booklets available in which the principal duties of corporate officers are detailed. Now, they are listed and codified in this legislation for the benefit of those who might consider taking on the responsibility of becoming a company director.
The Act is the product of years of research, analysis and careful drafting and is enormous – probably the largest piece of legislation in the history of the State. It will introduce a wide array of changes in the way companies conduct their business. Some of those changes will have immediate impact; for example, in addition to the requirement to convert, substantial changes are introduced to the regulation of transactions between companies and their officers, and there are also changes in the insolvency rules for companies.
Detailed analysis of the Act and what it will mean for individual companies is far beyond the scope of this briefing note, the purpose of which is to draw attention to the fact that the Act has been passed, and to alert business owners and company directors to the fact that change is coming, and that action will be required.
This Business Support article featured in the March/April 2015 edition of The Hardware Journal.