The Companies Act 2014 – your obligations as a Director

As you probably already know, The Companies Act 2014 was signed into law on 23rdDecember 2014 and will commence on 1st June 2015. 

The Companies Act 2014, which contains 25 Parts, 1,448 Sections and 17 Schedules, will repeal existing legislation and consolidate the existing 17 Companies Acts into one single Act. 

Its provisions will affect every registered Company and its Board of Directors and it’s vital that Directors know the steps they need to take to ensure that they are compliant with the new law. 

Existing private limited companies have the following options: 

1. It can, within 18 months (the “Transition Period”) following commencement, “opt in” to the new regime and decide to become an LTD; 
2. It can, during the 15 months following commencement, “opt out” and decide to become a DAC, or some other type of company; 
3. If it fails either to opt in or out it will, at the end of the 18 month period, be deemed to have become an LTD.

Should an existing private limited company take no action during the Transition Period, it will be deemed, on expiry of the period, to have become a new LTD. This means however that it will hold a default new form constitution consisting of its existing Memo & Articles of Association (with certain exceptions).

This is not a course of action that is recommended because of the “deeming” provisions of Companies Act 2014. Conflicts will exist between the deemed constitution and your Company’s governing instrument as filed at the CRO (your previous Memorandum & Articles of Association), making it practically unintelligible as a stand-alone document.

The reasons for taking positive action include: 

• Statutory defaults are generally better avoided, especially when a new bespoke constitution can be easily adopted; 

• Until the end of the Transition Period the advantages that will accrue to the LTD will be denied to them. 

• Failure by the company’s directors to adopt a new form constitution before the expiry of the Transition Period may amount to a breach of the directors’ general duty to ensure compliance with the new Act and may also constitute oppression of the shareholders. 

• It is likely that financial institutions will require a company to present a constitution when applying for finance as a LTD. 

• There is no pre-emption rights on the transfer of shares provided for in the new Act. 

• Pre-emption rights apply in relation to the allotment of shares, these rights are usually excluded in current Articles.

From 1st June 2015 all companies automatically default to a DAC and those wishing to convert to the more simplified LTD type Company must: 

1. Pass a Special Shareholders’ Resolution
2. Draft a new constitution for the Company
3. Prepare and file a Form N1 and the newly drafted Constitution with the Registrar of Companies

We recommend that conversion to a LTD will be the best option for the majority of companies and our company secretarial department are best placed to guide you in the conversion process. 

The OSK Company Secretarial department will be on hand to assist OSK clients to ensure an efficient and cost effective conversion of your company to a LTD. Dylan Byrne is Director in OSK Audit. Contact OSK Accountants Dublin for all your accounting and tax queries.