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Part 2 – Incorporation and Registration
6 Chapters – Sections 15 to 63
Part 2 Chapter Overview
Chapter 1 -Preliminary
Chapter 2 -Incorporation and Consequential Matters
Chapter 3 – Corporate Capacity & Authority
Chapter 4 – Contracts & Other Transactions
Chapter 5 – Company Name, Registered Office and Service of Documents
Chapter 6 – Conversion of Existing Private Companies to Private Company Limited by Shares
Part 2 Summary
Part 2 of the Act covers the incorporation of and conversion to the new company types. It sets out the law applying to the transition period and the conversion process from old to new company type. The law in this part applies to existing private companies “EPCs”, which the Act defines as “a private company limited by shares which was (a) incorporated under any former enactment relating to companies and (b) is in existence at the commencement of this section, but does not include any company where, subsequent to the commencement it re-registers as another company type.” S.16 provides for Ministerial discretion to extend the transition period from 18 to 30 months should difficulties be encountered in implementation of the conversion process, at the request of interested parties. Chapter 6 of Part 2 provides a the framework for EPCs on how to convert to the new company form as required under the legislation and Chapter 2 provides for the incorporation of new companies. It also outlines the procedure for a company to change its name and amend its constitution, the use of the company seal and the appointment and resignation of electronic filing agents in a similar fashion to current practice.
What is new?
There are now two types of private limited company, the LTD and the DAC. The LTD is the simplified model company with a single document constitution, without an objects clause as set in accordance with S.19. The DAC will have a two document constitution, containing a Memorandum and Articles within. The DAC will retain the objects. The DAC most closely resembles the EPC. EPCs will operate under DAC rules during the 18 month transition period unless they convert to the simplified Model LTD form under the transition options. An EPC which does not convert before the expiry of the 18 month period will be deemed to be a LTD and will be automatically converted by the Registrar of Companies. Sections 54 to 63 outline the conversion process which all EPCs will need to engage with in order to convert to one of the new company types, along with the relevant timelines. It clarifies roles and responsibilities in relation to the conversion process and outlines who may object and remedies available to parties who may be prejudiced due to any action or in-action arising from the process.
The Act contains provisions regarding the requirement for a company to have a registered office to be fulfilled, if so desired, by the use of a registered office agent. It requires that any company offering such services be pre-approved by the Registrar of Companies. A registered office agent must advise the Registrar of any change to its address, allowing the Registrar to update its records for any company using the Agents address.
Chapter 3 deals with Corporate Capacity & Authority and S.39 provides for registered persons whereby the board can authorise a person entitled to bind the company with the notification to the Register of these people being optional. S.40 sets out persons authorised to bind the company including registered persons
What is different?
The maximum number of members in a company private limited company has been increased from 99 to 149. This brings Irish company law into line with the requirements of the Prospectus Directive.
The new legislation brings changes to the corporate capacity and authority of private companies limited by shares. The doctrine of Ultra Vires has been removed for private companies and they now have unlimited corporate capacity under S.38. This change may mean that an objects clause is no longer required for certain companies, as they will no longer be restricted by them in their operations. The Act does not however prohibit the use of objects clauses should a company wish to have one, although a company having an object clause cannot be a LTD.
Part 2 deals with the Model Articles of Association from the 1963 Act known as Table A. The Act takes a new approach whereby the provisions from Table A have been included in the text of the legislation. These provisions are applicable to all companies. However, it should be noted that, as with Table A, certain of these provisions can be dis-applied or varied at the option of the company. A company may also choose to add further provisions to its Articles should they desire so long as they are not in contravention of the legislation.
S.19 sets down the form of the constitution for a private company limited by shares. The Company Law Reform Group are hopeful that use of this new model one document constitution will make it easier to set up and carry on business in Ireland. It is also felt that it should lead to lower incorporation costs, making it more attractive to incorporate in Ireland given the simplified structure. In an effort to simplify the incorporation process itself, the requirement to file a statutory declaration has been replaced by a requirement to file an unsworn declaration. This is also expected to decrease incorporation costs.
The Act provides that the company may have more than one company seal where it requires a second seal for use abroad. This should make it easier for companies when transacting business internationally.
The Act deals with the question of whether a transaction is binding on a company due to an alleged lack of authority of the person who exercised the company’s powers, by introducing an option to register a person entitled to bind the company with the CRO. The effect of registration will mean that they shall be deemed to have authority to exercise any power of the company and authorise others to do so. This may give comfort to parties transacting with a person who is acting on behalf of the company but who is not a director of the company.
What are the Key Points?
- The All New Conversion process
- Change to doctrine of Ultra Vires
- Simplified constitution
- Two types of private company
- Option to register persons authorised to bind the company
- Registered office agents
- Table A
What do accountants need to do?
It is vital that accountants become familiar with the new types of company and the conversion process. Clients will need to be informed of the different features applying to each company type and how these will impact on the running of their business in practical terms. Accountants are likely to be the key drivers in helping companies make the choice whether they become LTD or DACs under the new regime and they are also likely to be the ones who assist companies actually convert. Firms need to decide are they going to do this internally or outsource the entire process. If doing the conversions internally they will need to create or obtain the necessary minutes, resolutions and template constitutions. Alternatively they will need to source their outsourced transition agent.
Many SME enterprises could be able to avail of the facility to have a single director under the new Model LTD structure, companies should be made aware of this fact as it is a significant advantage of converting early.
If accountants offer a registered office service to clients they should comply with CRO requirements applying to agents and the procedure for a change of address.
What do companies need to do?
Companies should review their corporate structure and decide on what type of company will be best suited to the needs of their business. Larger companies should engage early with their shareholder base to ensure there is a consensus. A full review of the Memorandum and Articles of Association should be undertaken in order to ascertain if any work needs to be done to ensure they are not at variance with the act and any optional provisions required to be brought through to the new regime should be identified. EPCs will need to decide which of the two types of private company, LTD or DAC, they wish to convert to, or whether they would like to re-register as another type of company available under the Act.
While the Act does provide for a “Do Nothing” option, S.60 creates a statutory obligation for the directors to prepare and deliver a new constitution in the perscribed form to both the members and the CRO. No specific penalty or offence is described for inaction, however, the directors have a duty under S.223 to ensure the company complies with the Act. Further potential issues include the company having a deemed constitution that does not reflect its activities in the public domain and furthermore the possibility of shareholder oppression by not taking proactive action.
Companies may wish to avail of the option of registering a person authorised to bind the company at the CRO. This may be done if there is a desire to allow stakeholders confirm, via information held on the public record, that the person they are engaging with on behalf of the company has the necessary authority to transact the business concerned.
It might be considered convenient to use the services of a registered office agent and this service is already offered by many professional service firms.