Companies Act 2014
Major changes coming for Directors of Irish Companies...
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Companies Act 2014
Major changes coming for Directors of Irish Companies….
The Companies Act 2014 (2014 Act) was signed into law on 23rd December 2014 and is expected to be
enacted in June 2015. The new Bill reduces red tape and will make the legislation easier to understand.
New companies will also see cost saving benefits from a reduction in administration.
The Companies Act 2014 will incorporate the following key changes:
1. New Company Structures – New and existing companies must avail of new company structures as
outlined in Sections 1 – 25 of the Companies Act 2014.
2. Audit Exemption for small groups and guarantee companies – For the first time, Companies limited
by Guarantee and certain group companies will now be able to claim audit exemption provided they
meet certain criteria.
3. Codification of director’s common law fiduciary duties - The Companies Act 2014 gives statutory
recognition, in relation to director’s fiduciary duties and compliance with the Companies and Taxation
Acts.
4. Directors Compliance Statements - Directors of PLC’s and large companies will be obliged to sign a
statement acknowledging responsibility for compliance with company law obligations.
5. Summary Approval Procedures - Certain transactions must be declared by way of a declaration and
delivered to the Companies Registration Office within 21 days of the transaction
6. Changes to Insolvency & Corporate Recovery Regimes - The Act will reduce the courts supervisory
role in court liquidations and will give the Director of Corporate Enforcement greater powers of
intervention and scrutiny of liquidations.
7. Priority of charges and registration of charges - where security is taken over assets of the company,
the priority will rest with the person who has been the first to register the security interest with the
Companies Registration Office.
Companies Act 2014
Overview
The Companies Act 2014 (2014 Act) was signed
into law on 23rd December 2014 and is expected
to be enacted in June 2015. Once enacted, the
2014 Act will replace the Companies Acts 1963 to
2013.
The 2014 Act was first introduced in 2012 with
the purpose of reforming company legislation
within Ireland. This will be achieved by replacing
the various Acts from 1963 to 2013 with one
single piece of legislation, which is published in
two volumes and incorporates 1,429 sections,
spread over 25 parts.
There are a number of important factors for both
company Directors and company members /
shareholders to consider before the 2014 Act is
enacted. Listed below are some of the key
factors.
New Company Structures
Introduction
Under the 2014 Act there will be a number of
new company structures. As outlined above, the
2014 Act will comprise of 25 parts divided over
two volumes and each separate entity will be
governed by specific parts of the 2014 Act.
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Such a structure is expected to make it easier to
identify which parts of the Act are relevant to
each company structure, unlike the current
legislation. Under the current legislation, matters
relating to each company type are spread across
the various acts.
The following is a summary of the new company
structures to be introduced, along with the parts
of the 2014 Act:
New
Company
Structure
Description
Applicable Part
of The
Companies Act
2014
CLS
New model private company
limited shares
1 to 15
DAC
Designated Activity Company
16
PLC
Public Limited Company
17
CLG
Company Limited by
Guarantee
18
UC
Unlimited Company
19
Parts 20 to 25 of the 2014 Act cover areas such as
Re-Registration, Unregistered Companies and
Joint Stock Companies, Investment Companies
and other matters.
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While there are a number of options available to
Irish companies under the 2014 Act, it is expected
that most SME companies will adopt the “CLS”
structure, which will allow the company to avail
of the new company law procedures as outlined
in parts 1 to 15 of the Companies Act 2014. The
“DAC” structure more closely resembles the
existing private limited company and would be
suitable for special purpose companies (for
example, regulated companies).
Key Points
There are many similarities between the CLS
structure and the existing private limited
company. However there are some significant
differences:
`
• The Memorandum & Articles of Association
have been replaced by a single constitution
document
• “Ultra Vires” (acting beyond the scope of
powers granted by the company’s objectives
clause) will no longer apply
• CLS Companies will only require 1 Director
• The right to dispense with the holding of a
physical AGM (Annual General Meeting)
• A director will continue to be able to act as the
company secretary, however in a situation
where the company has only one Director,
such person is forbidden from also acting as
secretary
• No requirement to have an authorised share
capital
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• There is an additional benefit for group
structures included in the bill as they will now
be able to avail of the audit exemption, if the
group, when taken as a whole, can meet the
relevant requirements to claim audit
exemption
In the case of a DAC structure, the following still
apply:
• A DAC will have a two part constitution similar
to the existing memorandum & articles of
association
• A DAC is still required to have at least two
Directors
• A DAC must hold an AGM, unless it is a single
member company
• A DAC is required to have an authorised share
capital
All private companies will be obliged to register as
a CLS or DAC and will be given an 18 month
transition period to do so. Any company that has
taken no action to convert will automatically
default to a CLS structure. It should be noted that
in this case, shareholders and creditors can take a
view that the DAC is more appropriate, challenge
the status and argue that they were prejudiced by
the Directors failure to act.
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Making the Transition to the New Company
Formats
All private companies will be obliged to register as
a CLS or DAC and will be given an 18 month
transition period to do so. The transition period
commences once the Act becomes live. Once the
Act is in force, all private limited companies will
be categorised as DAC until conversion to CLS
takes place.
of audit exemption, however Registered Charities
will still be required to prepare audited accounts.
Previously, the exemption did not apply where a
company was a parent or a subsidiary company
and these companies will now be able to claim
the exemption if they meet other criteria.
Companies will only have to meet 2 of the 3 size
criteria to qualify as a “small company” for the
purposes of claiming an audit exemption.
Adopting the DAC Structure
Pass a shareholders resolution to become a DAC
up to three months before the end of the
transition period (18 months). Amending
resolution and new Memo & Arts to be filed with
CRO, and the name of the Company changed.
Under the Bill, the audit exemption will be
extended to parent and subsidiary companies and
this is contained in subsection 294-295 of the act.
Dormant companies will be able to avail of audit
exemption once their annual returns are filed on
time.
This structure is more likely to be adopted by
“special purpose” companies.
Listed below are the Company types can avail of
audit exemption:
• Company Limited by Shares (CLS)
• Designated Activity Company (DAC)
• Company Limited By Guarantee
• Small Groups
• Non-designated Private Unlimited Company
(ULC)
Other Areas of The Act
A. Audit Exemption for small groups and
guarantee companies
The new Companies Act 2014 will make
significant changes to certain companies who
under current legislation do not qualify for the
audit exemption. The new rules will apply to
financial years commencing on or after the 1st
June 2015.
Under the new legislation, Companies Limited by
Guarantee will for the first time, be able to avail
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Small Company Conditions
The qualifying conditions for a small company are
satisfied by a company in relation to a financial
year in which it fulfils 2 or more of the following
requirements in the current & preceding financial
year:
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1. The amount of the turnover of the company
does not exceed €8.8 million;
2. The balance sheet total of the company does
not exceed €4.4 million;
3. The average number of employees of the
company does not exceed 50
Small Group Conditions
A group qualifies as small in relation to a
subsequent financial year of the holding
company:
1. If the qualifying conditions are satisfied in
respect of that year and the preceding
financial year;
2. If the qualifying conditions are satisfied in
respect of that year and the group qualified as
small in relation to the preceding financial
year;
3. If the qualifying conditions were satisfied in
respect of the preceding financial year and the
group qualified as small in relation to that
year.
The qualifying conditions for a small group are
satisfied by a group in relation to a financial year
in which it fulfils 2 or more of the following
requirements:
1. The amount of the turnover of the company
does not exceed €8.8 million;
2. The balance sheet total of the company does
not exceed €4.4 million;
3. The average number of employees of the
company does not exceed 50
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B. Codification of director’s common law
fiduciary duties
The Companies Act 2014 gives statutory
recognition, in relation to director’s fiduciary
duties and compliance with the Companies and
Taxation Acts, which will provide greater clarity
for Directors. Duties include:
• Act in good faith and in the best interests of
the company
• Act with honesty and integrity in relation to
the conduct of company affairs
• Have regard to the interest of employees and
the shareholder of the company
C. Directors Compliance Statements
Directors of PLC’s and large companies (Balance
Sheet exceeding €12.5m & Revenues exceeding
€25m) will be obliged to sign a statement
acknowledging responsibility for compliance with
company law obligations.
D. Summary Approval Procedures
Any transactions which include loans to Directors,
mergers, financial assistance for the purchase of
own shares or a reduction of share capital, must
be declared by way of a declaration and delivered
to the Companies Registration Office within 21
days of the transaction.
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Furthermore, a Special Resolution giving the
Directors authority to carry out the transaction
must be passed no more than 12 months before
the event (24 months in the case of a merger).
E. Changes to Insolvency & Corporate Recovery
Regimes
The Act will reduce the courts supervisory role in
court liquidations and will give the Director of
Corporate Enforcement greater powers of
intervention and scrutiny of liquidations.
F. Priority of charges and registration of charges
Under the Act, where security is taken over assets
of the company, the priority will rest with the
person who has been the first to register the
security interest with the Companies Registration
Office.
Considerations for a Company
Director
Seek advice on Company Type
Advice should be sought on which type of private
limited company which would best suit your
company. All registered companies will be obliged
to register as either a CLS or a DAC within the 18month transition period. During this period all
companies will be subject to company law
applicable to a DAC type company.
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CLS V DAC
As stated above, most small companies will adopt
the CLS company type. CLS is similar to the
existing limited company structure but with the
additional benefit of having one document
constitution and no objects clause. The DAC will
mostly be used by special purpose companies.
Company Types : Key
Differences
CLS
DAC
Directorship
(Minimum)
1
2
Constitution
Single Document
Two Documents
Not Required
Required
Unlimited
Restricted
Non Compulsory
Compulsory
Authorised Share
Capital
Objects Clause
AGM
Conversion Procedure
CLS
1. Shareholders resolution to be passed to adopt
new form constitution three months prior to
end of transition period. Resolution is then
registered with the CRO.
2. New Certificate of Incorporation (CLS) issued
DAC
1.
Shareholders resolution to be passed to
adopt new form constitution three months
prior to end of transition period.
2.
Amending resolution, Memo & Articles and
change of name is then filed with the CRO.
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Overview: Key Points
Directors
• Certain companies a director’s compliance
statement will be required whereby they must
acknowledge compliance with both company
and tax law; and
• The directors’ report in accounts to confirm
there is no relevant audit information of which
auditors are unaware which will lead to
increased accountability.
Financial Statements and audits
• Large companies/groups (turnover exceeds
€50 million in both the last two financial years)
will be obliged to have audit committees;
• Audit exemption for small groups and
guarantee companies has been introduced;
• An introduction of a provision for revision of
defective financial statements; and
• All companies will now have a limit on
changing their financial year end.
Miscellaneous
• All offences will now be categorised and
increased penalties imposed for more serious
offences (including imprisonment);
• A requirement for auditors’ reporting for
offences falling into category 1 or 2 only;
• Merger provisions for Irish private entities
have been introduced;
• Companies can now be single member;
• All liquidators and examiners must now be
qualified to act;
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• Directors of insolvent companies to show that
they co-operated with liquidator to avoid
restriction;
• There is an optional two-stage registration
process for charges;
• change to definition of charges so that charge
over cash and/or bank account no longer
required to be registered; and
• Companies to notify the CRO of anyone who is
appointed to bind the company generally,
other than directors or officers and the CRO
will
register
the
appointment.
This
appointment will be known as the “registered
person”.
Conclusion
Until the new Companies Acts are affected, the
Companies Acts 1963 to 2013 still apply to all
registered companies in the State.
Until such time, Directors should give
consideration to the impending amendments as
outlined above and prepare for these in the short
term.
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Contact Us
•
•
Kieran Noone
Gemma Scott
ACCA, Director
Executive Assistant
T +353 (0) 1 5312400
E kieran@searingpoint.ie
T +353 (0) 1 5312400
E gemma@searingpoint.ie
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Searing Point Limited
T/A Searing Point Chartered Accountants
Tax Advisors & Registered Auditors
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