Part 16 – Designated Activity Companies

8 Chapters – Sections 963 to 999

Part 16 Chapter Overview

Chapter 1 – Preliminary and definitions

Chapter 2 – Incorporation and consequential matters

Chapter 3 – Share capital

Chapter 4 – Corporate governance

Chapter 5 – Financial statements, annual return and audit

Chapter 6 – Liability of contributories in winding up

Chapter 7 – Examinerships

Chapter 8 – Public offers of securities etc

Part 16 Summary

Part 16 of the Act sets down the law relating to the new company type, the Designated Activity Company “DAC”. The DAC will also be subject to the law as set down in Parts 1-15 except where modified or dis-applied by Part 16. There will be two types of DAC, a private company limited by shares and a private company limited by guarantee having a share capital.

EPCs will need to consider whether the DAC is the correct corporate form for their business model and take action to avoid being deemed a LTD at the end of the conversion period if the DAC is the preferred model. The DAC regime is similar to the legislative framework for existing private companies under the 1963 to 2013 Acts.

What Sections in Parts 1 to 15 are disapplied for DACs

Section	Description
17	Way of forming a private company limited by shares
18	Company to carry on activity in the State and prohibition of certain activities
19	Form of the constitution
25.3	Certificate of incorporation to state that company is a private company limited by shares
26.1 – 4	Provisions as to names of companies
27	Trading under a misleading name
32.1	Amendment of constitution by special resolution Section
38	Capacity of private company limited by shares
88	Variation of rights attached to special classes of shares
128	Directors
136	Share qualifications of directors
655	Liability as contributories of past and present members

What are the Key Features of a DAC

Name:	Its name must end in the words designated activity company or DAC. An application for an exemption to this stipulation can be made if it is a charity or non-profit and meets all the necessary requirements.
Constitution:	A DAC must carry on an activity in the state and this must be stated in its Memorandum of Association. Therefore a DAC must have an objects clause and also a Memorandum and Articles of Association which comprise its constitution.   Although a DAC must have an objects clause, persons dealing with a DAC will not be prejudiced if the company is acting beyond its capacity and any person doing business with a company is no longer bound to inquire as to whether the activity is within the company’s capacity. However the directors may be held to account for causing the company to act in such a manner. An ultra vires act can be ratified by special resolution. A separate resolution can absolve the directors from any liability arising. A special resolution can be passed to alter a DACs objects.   The Memorandum must state whether the DAC is limited by shares or by guarantee. The articles may contain regulations regarding the internal running of the company or it may simply contain a statement to the effect that the provisions of the Act are adopted. Where the articles do not expressly exclude or modify an optional provision in the Act the provision will be deemed to apply.  The articles can be amended or added to by special resolution.
Corporate Governance:	A DAC must have a minimum of 2 directors. It can have between 1 and 149 members. A DAC may dispense with the holding of an AGM.
Share Capital:	A DAC can list debentures.
Filing Requirements:	A DAC may not avail of an audit exemption where it has debentures admitted to trading, or where it or its holding company is a credit institution or insurance undertaking. If a DAC is a not for profit it can gain an exemption from filing financial statements with its annual return.

What is new?

Although a DAC shares many similarities with the new simplified model private company the major difference is that a DAC will have an objects clause in its Memorandum of Association. S.38 which gives LTD companies unlimimted capacity has been specifically disapplied for DACs. This feature is useful as many business models still require clarity of purpose from the point of view of customers, investors and in some cases to comply with tax legislation.

It is worth noting that the existence of objects will not limit the corporate capacity of a DAC, as the concept of Ultra Vires will no longer exist in its current form. Under the application of S.973, this means that any person dealing with the company will not be prejudiced and will no longer need to check as to whether a company is acting within its capacity. However, it may still be the case that directors will find themselves subject to action for having caused the company to act in an ultra vires fashion.

During the transition period all EPCs can elect to retain their objects clause and become a DAC should they wish not to become a simplified LTD. These companies must engage with the conversion process no later than 15 months after commencement of the Act in order to avoid being caught by the deeming powers given to the Registrar of Companies to convert any companies to LTD if they haven’t already taken action by this time. If a company wishes to become a DAC after this cut-off point it can use the re-registration process available under Part 20 of the Act, as the conversion process can only be used during the transition period.

DACs can avail of the audit exemption provisions set out in S.358 and S.359 provided there are no debentures admitted to trading and their holding company is a credit institution or an insurance undertaking as set out in S.991.

DACs unlike LTD companies can not have just 1 director. They must have 2 directors at a minimum. From a governance point of view there have been some concessions for a DAC, for example it will be possible for single member DACs to dispense with the holding of an AGM but in general where there are 2 or more members they must hold an AGM under S.988.

What is different?

Under the new Act a company must indicate its company type in its name. Therefore a DAC must have the word DAC or Designated Activity Company after its name.

A company which was exempt from using the word limited in its name under the current regime must become a DAC in order to continue to avail of this exemption, provided it makes the appropriate confirmations to the Registrar and does not do anything which would make it non-compliant with the rules governing its entitlement to this exemption. Under S.971 a company may exempt itself from the use of the name and designation designated activity company or DAC provided it has charitable objects, prohibits distribution of assets to members and requires the transfer of assets to a similar company upon winding up.

While there have been some simplifications a DAC will have a more onerous governance regime than a LTD. A DAC will have a two document constitution to include both the Memorandum and Articles of Association.  The constitution may prevent it from using majority and unanimous written resolutions under S.989 and S.990.

Under S.996 a DAC may exempt themsleves from filing financial statements with their annual return if the company has been formed for charitable purposes and it has made an appropriate application to the Charities Regulatory Authority (CRA) and the CRA has given them an exemption on the basis that the financial statements are filed with them.

A private company wishing to list debentures and debt securities can continue to do so only if they become a DAC.

What are the Key Points?

• New type of private company with objects clause the same as EPCs
• 2 document constitution containing Memorandum and Articles of Association
• DACs must have 2 directors
• May be limited by shares or by guarantee
• Must have DAC in its name

What do accountants need to do?

As the law relating to DACs will be applicable to all private companies during the transition period, unless a company elects to become an LTD, accountants must be familiar with the law as it relates to a DAC.

They should be familiar with the various reasons for becoming a DAC so that they can advise their clients accordingly.

Accountants should become comfortable with the mechanics of the conversion process so that they can undertake a company conversion to a DAC at the request of their clients.

What do companies need to do?

Companies should review the new company forms available under the Act with reference to the needs of the company and how is transacts its business. If it is decided that the DAC is the preferred company type it should take the necessary steps to convert to avoid being deemed a LTD at the end of the transition period. If a company is becoming a DAC it only has 15 months from the first of June 2015 up to 31^st of August 2016 to convert

On completion of a review companies may find that, due to the nature of the activities carried on by the company, it will be obliged to become a DAC, even if their preferred company format is LTD. It might be advisable to consider whether the activities causing the requirement to be a DAC are in fact essential to the business and if they outweigh the advantages of becoming an LTD, given the DAC’s more onerous regime.

Companies should also be aware of the stakeholders with the power to oblige conversion to a DAC and remedies available to those who may claim oppression if conversion requirements are not complied with.