Part 18 – Guarantee Companies
9 Chapters – Sections 1172 to 1225
Part 18 Chapter Summary
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 – Investigations
Chapter 9 – Public offers of securities etc
Part 18 Summary
This part sets down the law relating to a company limited by guarantee not having a share capital. Under the current law a private company limited by guarantee may have a share capital or be limited by guarantee not having share capital.
Companies limited by guarantee and having a share capital are considered to be private companies. A company limited by guarantee not having a share capital is a public company for the purposes of its treatment under company law and this type makes up the vast majority of guarantee companies on the Register.
In order to qualify as a company limited by guarantee ”CLG” under the new company law regime a company may not have a share capital. A guarantee company which does have a share capital will be considered to be a DAC.
The provisions of Parts 1-15 applying to a private company also apply to a CLG except where modified or dis-applied by Part 18.
What Sections in Parts 1 to 15 are Dissaplied for CLGs
| Sections | 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 |
| 38 | Capacity of private company limited by shares |
| Chapter 6 Part 2 | Conversion of EPC to LTD |
| 65 | Power to convert shares into stock, etc. |
| 66 | Shares |
| 67 | Numbering of Shares |
| Chapters 3 and 4 Part 3 | Allotment of Shares and variation in capital |
| Chapter 5 Part 3 Except for S.94 | Transfer of Shares |
| Chapter 6 Part 3 Except for Sections 113 – 116 | Acquisition of own Shares |
| 124 | Procedures for declarations, payments etc of dividends |
| 125 | Supplemental Provisions relating to S.124 |
| 126 | Bonus issues |
| 128 | Directors |
| 136 | Share qualifications of directors |
| 161.7 | Director voting on contract etc in which director is interested |
| 162 | Holding of any other office or place of profit under the company by a director |
| 194 | Majority written resolutions |
| 195 | Supplemental provisions in relation to S.194 |
| 320.1 | Holding of own shares |
| 326.1.d | Directors report as it relates to dividends |
| Chapter 2 of Part 9 | Acquisition of own shares |
| 655 | Liability as contributories of past and present members |
Key Features
| Name: | The name of a CLG must end with the words Company Limited by Guarantee or CLG. However, where a CLG is a charity or not for profit it may apply to dispense with this requirement. |
| Constitution: | A CLG will have a 2 document constitution made up of a Memorandum and Articles of Association. The Memorandum will state that the company is limited by guarantee and that on winding up each member will contribute to the assets of the company as may be required up to the amount stated in the Memorandum.
A CLG must have an objects clause. However any persons dealing with a CLG 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. 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 CLG’s objects. Debenture holders shall be entitled to object to the alteration of the objects clause and must be given notice of the meeting where the resolution to alter the objects is to be passed.
The Articles may contain regulations in relation to that company or they may consist solely of a statement to the effect that the provisions of the Act are adopted in relation to that company. Where the Articles do not exclude or modify an optional provision in the Act it will be deemed to apply to the company.
Where a CLG is already in existence and governed by regulations these regulations will continue in force (assuming they are consistent with the Act) and may be altered as permitted.
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| Corporate Governance: | A CLG must have at least 2 directors. Retirement by rotation shall apply unless the constitution provides otherwise.
A CLG can have just one member and there is no maximum limit on the number of members. New members must be approved by the directors. Membership ceases on registration or death.
A single member CLG may dispense with the holding of an AGM but a multi-member CLG may not.
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| Share Capital: | Although a CLG cannot have a share capital and cannot apply to have shares listed it can offer debenture stock to the public.
Existing guarantee companies with a share capital will DACs under the new law.
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| Filing Requirements: | A CLG that does not trade for the acquisition of gain is exempted from filing financial statements with the Registrar of Companies.
A CLG may be audit exempt although members are entitled to object.
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What is new?
Unlike under the old regime whereby CLGs needed a minimum of 7 members, under the new legislation and specifically S.1174 a CLG need only have one member.
Under S.1178 the company name must end with Company Limited by Guarantee or CLG. The company should change the name within 18 months of commencement during the transition period. At the end of the transition period if the company has not converted the CRO will issue a new certificate of incorporation designating the company as a CLG
A CLG can avail of audit exemption in the same fashion as a LTD providing it meets the relevant criteria; however any one member may object to the availing of the exemption under S.1218 rather than members holding 10% or more of the voting rights as set out in S.334 for other company types.
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.
CLGs like DACs but unlike LTD companies can not have just 1 director. They must have 2 directors at a minimum. A single member CLG may dispense with the requirement to hold an AGM but a multi-member CLG may not under S.1202
What is different?
A CLG will continue to be subject to the requirement to contain and objects clause in its Memorandum of Association under S.1882. However, it is worth noting that, as with a DAC, 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. 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.
Under the current law the model guarantee articles are derived from Table C. These have been codified into the Act in the same way as Table A for limited companies. Certain of these provisions are optional and can be dis-applied or varied by the company in its constitution.
CLGs must have 2 directors under S.1194 and under S.1196 one third of directors should retire by rotation on an annual basis unless otherwise provided by the company’s constitution. Retiring directors are however eligible for re-election.
S.1197 states that the remuneration of directors shall be determined in the annual general meeting unless the company’s constitution has been ammended to provide otherwise.
Under S.1220 a CLG 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 CLG may be formed by consequence of a merger or division as well as a re-registration.
Certain financial disclosure requirements have been modified in so far as they relate to CLGs.
What are the Key Points?
- CLG’s with share capital no longer possible
- Retain objects clause
- Audit exemption possible
- Single member CLG may dispense with AGM
- Name change required to show company type
What do accountants need to do?
Accountants should be aware of the regulations in relation to the financial statements of CLGs and of any exemptions available under the new Act. For companies limited by guarantee accountants need to ensure that when a company is availing of the audit exemption that if the company has charitable status that the company is not a size that would require an audit to be performed as part of the annual return to the CRA. Firms need to ammend their financial statement disclosure templates to reflect the formats for full and abridged financial statements.
What do companies need to do?
Companies need to familiarise themselves with the governance regime relating to a CLG and the modified provisions regarding convening a general meeting. They should complete a review of the Memorandum and Articles of Association to ensure it is not at variance with any mandatory provisions of the Act. Existing guarantee companies must take steps to change to comply with provisions of the Act.
If directors are availing of the exemption immediatley after commencement from the 1st of June, for periods ending before the commencement date, they will need to ensure that they are not breaching their fiduciary duties under S.228. Directors need to be happy that they are acting in the best interest of members, where members had no legislative framework to object to the audit exemption under the previous legislation.