The Minimalist Guide to the Companies Act, 2014

companies act 2014

The Companies Act, 2014 will ensure big changes in company law in Ireland will come into effect on 1st June, 2015.

This will mean that existing statutes which have been in force for over 50 years will be binned, and this includes the Companies Act, 1963 and the Companies Act, 1990.

Key definitions

Some critical definitions to understand will be

  • A DAC-designated activity company
  • An LTD-the new name for the existing private limited company.

Existing private companies limited by shares will be treated as DACs (designated activity company) unless they convert to an LTD during the transition period-the 1st 18 months from 1st June, 2015. This transition period ends on 30th November, 2016.

The procedure for the existing private company limited by shares to transfer to an LTD is a straightforward one.

The new LTD only needs one director; the DAC requires two directors.

There will be other types of company such as PLC (public limited company), CLG (company limited by guarantee), ULC (unlimited company with a share capital), PUC (public unlimited company), but the most common types will be LTDs and DACs.

What’s new?

  • The existing Memorandum of Association and Articles of Association in private companies will be replaced by a Constitution;
  • Only 1 director will be required for an LTD;
  • The section 150 restriction application re directors will now become a section 819 application;
  • There is a new obligation on directors to act “honestly and responsibly”;
  • There are more audit exemptions for companies;
  • The directors will have a duty to ensure that the Company Secretary has the skills necessary to act as Company Secretary and maintain the records which need to be kept;
  • A new Registered Person can be registered with CRO and can bind the company in a particular transaction or class of transactions; a Company can revoke the registration of a Registered Person by completing the correct form and submitting to CRO;
  • Directors will be acknowledging on appointment, by certification, their legal duties under the companies acts, other acts, and in common law;
  • Company secretaries will also have to acknowledge their legal duties and consent to their appointment;
  • The definition of an insolvent company will change to one which is unable to pay a debt in excess of €10,000.

Designated Activity Companies (DAC)

A DAC must

  • Have a Memorandum and Articles of Association
  • Have at least 2 directors
  • Hold an AGM.

LTD companies

  • There will be no ultra vires as there will be unlimited objects permitted
  • A one page constitution will replace the Memorandum and Articles of Association
  • Will have the legal capacity of a Natural Person
  • You can have a Single Director Company (no need to drag your spouse/partner into being a director)
  • No need to hold an AGM
  • No need to have an Authorised Share Capital
  • There will be new responsibilities and duties for directors.

To convert an existing private company to an LTD you do so by passing a special resolution, fill out CRO form N1, and CRO will issue a new Certificate of Incorporation.

If an existing private company fails to convert by the end of the transition period, the company will be deemed by law to be an LTD and will have a constitution comprising its existing articles and memorandum-without the Objects clause.

Forms N1, N2, N3

Form N1 is to be used to convert a private company to an LTD, pursuant to section 59/60 of the new Companies Act; N2 is used to convert a private company to a DAC pursuant to section 63; form N3 is used for companies limited by guarantee.

Other provisions of the Companies Act, 2014

Section 52 allows a Court to order a company to give full security for the costs of legal proceedings where the company is a plaintiff if it appears that the company will be unable to pay if it loses its case.

Section 53 deals with the enforcement of judgements against companies and their officers and gives the option to a Court to order the personal assets of directors are seized where an order or judgment is wilfully disobeyed or ignored.

This should give creditors, who are left unpaid by companies, a new weapon personally against the directors of the company.

Section 212 is the equivalent of the existing section 205 which aims to provide relief for minority shareholders who are oppressed.

Section 223 and 224 place new statutory duties on directors-section 224 obliges “directors to have regard to the interests of employees.”

Section 343 is a new application which can be brought in the District Court seeking to have a company’s audit exemption restored- a company automatically loses audit exemption when it is late filing its statutory returns with CRO, which is a regular occurrence up and down Ireland.

Disclaimer

The above is only a guide to the Companies Act, 2014, it is not legal advice.

For legal advice, contact a solicitor.

For more information, take a look at CRO also.

7 Crucial Elements of a Shareholder’s Agreement

shareholders-agreements

Good fences make good neighbours.

A shareholders agreement can be every bit as important in a company where there are minority shareholders.

Because a minority shareholder(s) whose interests and rights can easily be ignored by being outvoted by the other shareholders, particularly in circumstances where the minority shareholder holds less than 25% of the shares.

A minority shareholder in this situation does not have the power to block the passing of a special resolution by the other shareholders who can ignore shareholders with less than 25%.

To counter this situation many shareholders will enter into a shareholders’ agreement to protect the rights of minority shareholders and this agreement will typically cover a wide range of topics.

We take a look at 7 of the most important issues below.

1)      Share subscriptions

When a new investment is made in a company the investor would be well advised to have a shareholders’ agreement drawn up which will govern how the company is to be run at the time of subscription.

2)      Sale of shares

The sale of shares, if there is a dispute between only two shareholders can be problematic but provision for such a turn of events can be provided for in the shareholders’ agreement. This could be done by a number of different procedures called tag along, drag along, offer round, lock in or a combination of these.

These type of arrangements are designed to provide a solution where shareholders have fallen out and cannot come to an agreement as to how to resolve it.

3)      Company operations

The agreement might also cover the operations of the company such as a right for a minority shareholder to appoint a director to the board of the company or to committees of the Board.

4)      Vetoes

One of the most important sections of a shareholders’ agreement is a vetoes section which lists out a series of transactions which cannot be carried out without the consent of the protected minority shareholder.

5)      50/50 shareholders and deadlock

A critical part of any agreement will also deal with a situation where there are two shareholders with each having 50% and no agreement in relation to a substantive course of action.

6)      Non-compete covenants

It is common to include a non-compete covenant to prevent shareholders from competing with the company as long as they are shareholders. This would seek to cover competition with the company’s business, solicitation of company’s suppliers and solicitation of company staff.

Set out above are some of the most common clauses in a shareholder’s agreement.

7)      Other issues

Other issues that might be dealt with include

  • confidentiality,
  • arbitration,
  • no partnership,
  • assignment of rights and
  • conflict with the Articles of Association of the company.

These are only some of the issues that should be addressed in your agreement. Circumstances will vary from situation to situation. But trying to draft one yourself or copying a template that you might come across is not the smartest thing to do.

A poorly drafted shareholders’ agreement, or none at all, will cost you  a lot more than the cost of having one drafted by your solicitor.
By Terry Gorry
Google+

How To Set Up a Limited Company (And the Advantages and Disadvantages of Limited Company Status)

Thinking about setting up a limited company?

set-up-limited-company
Advantages and disadvantages of limited liability

Fancy the thought of becoming a company director? And majority shareholder?

But you’re not sure whether it is a good idea or whether you need to?

This piece will take a look at how to register a limited company in Ireland, the different types of limited company and, most importantly of all, the advantages and disadvantages of setting up a limited company.

Update 2015

The law in this area is due to change on 1st June, 2015 when the Companies act, 2014 comes into force.

To form a company, also known as setting up a company or incorporating a company, you will need to submit the following documents, along with the registration fee, to the companies registration office:

  1. Memorandum of association
  2. Articles of association
  3. Form A1

To carry out your company set up you can download the forms above from the companies registration office website at CRO.ie.

Rather than do it yourself though you can engage the services of a solicitor who will probably have formed many companies on behalf of clients. Your solicitor will also probably use a reputable company formation service which will make formation easier and less likely to cause any delays.

Memorandum of association

Your company set up will involve what’s called a memorandum of association.

This memorandum of association sets out the conditions upon which the company is granted incorporation. It must contain provisions dealing with certain matters e.g. the name and objects of the company and, if it is a company with limited liability, that fact must also be stated.

The memorandum of association must be in accordance with, or as near as circumstances permit, to the appropriate table in the First Schedule to the Companies Act 1963. It must be printed and divided into paragraphs and numbered consecutively.

Types of company

To set up a company in Ireland you must decide first which is the most appropriate type of company for your enterprise-

  1. Private company limited by shares Table B
  2. Company limited by guarantee and not having a share capital Table C
  3. Company limited by guarantee and having a share capital Table D
  4. Unlimited company Table E
  5. Public limited company Second Schedule of Companies (Amendment) Act 1983

Articles of association

Your company set up will also require the use of articles of association. The articles of association is a document which sets out the rules under which the company proposes to regulate its affairs.

Articles of association are required to be registered by a company limited by guarantee and having a share capital or an unlimited company. Articles of association must be printed and divided into paragraphs and numbered consecutively.

A company limited by shares or a guarantee company not having a share capital may register articles of association with the CRO. Model form articles of association are set out in the First Schedule to the Companies Act 1963.

Samples of memorandums and articles may be obtained from legal stationers, accountants, solicitors or company formation agent.

Form A1

Form A1 requires you to give details of the company name, its registered office, details of secretary and directors, their consent to acting as such, the subscribers and details of their shares. It incorporates a statutory declaration that the requirements of the Companies Acts have been complied with, and as to the activity which the company is being formed to engage in.

Applications for company set up can be submitted under any one of three schemes, each of which has a different customer service standard:

Ordinary: while there is no guaranteed service level, in practice it takes 15 working days.

Fé Phrainn: ten working days

Companies Registration Office Disk: five working days

Documents are processed in chronological order and are subject to checks.

Documents returned for correction are processed according to their date of re-submission to the companies registration office.

Statutory declarations sworn abroad will often require further legalisation.

The Advantages and Disadvantages of a Setting Up a Limited Company

If you are thinking of starting a business in Ireland you may be considering registering a limited company rather than trading as a sole trader or partnership.

 What are the advantages of setting up a limited company?

There are three broad advantages of registering a company with the Companies Registration Office (www.cro.ie).

Advantages of a limited company

Firstly a company has a separate and distinct legal identity from its member or shareholders. This allows it to enter into contracts, sue and be sued, and so on in its own right.

Secondly a company can live forever provided it is not liquidated or struck off the companies’ register-this is called perpetual succession.

Thirdly its potential liability is limited to its paid up share capital unless it is an unlimited company but the vast majority of companies in Ireland are private limited companies.

In theory this means that you as shareholder or member are protected from creditors and banks should the company cease.

In practice however you will find that many banks and suppliers will insist on personal guarantees from directors or shareholders.

Disadvantages of a limited company

The main disadvantage of setting up your own company are

  1. Cost, although this is minimal as you can incorporate a company for between €200 and €300;
  2. Filing financial statements every year with the Companies Registration Office with those details being open to public scrutiny.

On balance, despite the limitations on the concept of limited liability and protection from creditors, setting up a company is a smart move.

The alternatives of trading as a sole trader or partner in a partnership offer no protection from creditors and can leave you open to losing everything you own and bankruptcy.

Conclusion
Company set up in Ireland is a relatively straight forward process. The companies registration office are helpful and they have quite a lot of information on their website.

Sooner or later when forming your small business or even if you choose to work from home, you will have to carry out a company set up.

This need not be a complex task but one that should not be taken for granted.

You might also be interested in the 7 critical elements of a shareholders agreement.
By Terry Gorry
Google+