Michelle McLoughlin of M. McLoughlin & Co. Solicitors kindly sent us on this information which is essential reading! Changes in Irish company law commenced in June 2015. If you need to form a new company you now have more options and existing companies have some decisions to make.
New private companies can decide to be formed either as:
(1) a private company limited by shares – a LTD, and the company name will end in LTD; or
(2) A designated activity company, which is a private company limited by shares, - a DAC, and the company name will end with DAC.
Which option should I choose?
This will depend on the type of business you want to set up – for example a credit institution cannot be a LTD.
Do you want to set up the company for a particular purpose and for no other purpose – then a DAC may be suitable.
It is most likely that you will elect to form a LTD, a private company limited by shares due to its favourable and flexible benefits.
The main differences between a LTD and a DAC are:
1. A DAC has objects clauses – this means that the company only has the powers set out in its constitution. It is up to the directors to ensure the company operates within the powers given to the company; A LTD is not limited in this way as it does not have objects clauses that would limit its powers;
2. A LTD will have a one document constitution. A DAC will have both a memorandum and articles of association as its constitution;
3. A LTD can have 1 director. For a DAC you need to have a minimum of 2 directors. Both types of companies will still need to have a company secretary (which cannot be the sole director of a LTD);
4. A LTD can use a written unanimous decision procedure instead of holding an AGM (annual general meeting). A DAC must hold an AGM if it has more than one member/shareholder;
5. A LTD does not have to state in its constitution its authorised share capital, only the designation of its share capital, for example shares of €1.00 each or €0.10 each or €0.01 each.
Common benefits that apply to both types of private companies
Existing Irish private companies limited by shares have a transition period to decide whether they wish to remain operating as a designated activity company, a DAC – as all existing private companies have a memorandum and articles of association this means that they have objects clauses that limit the powers of the company. If they wish to remain a DAC they need to take action and make the necessary filings with the Companies Registration Office (“CRO”) by 31 August 2016.
If existing Irish companies want to avail of the advantages of the new LTD company they can convert immediately to a LTD and make the necessary filings with the CRO. The constitution filed can be customised to meet the specific requirements of the company. If a company wishes to file a new customised constitution this should be done by 30 November 2016.
What if an existing company takes no action?
The default position will be that on 30 November 2016 the company will be converted to a LTD, the company’s existing objects clauses will no longer apply and the company’s existing articles will continue to apply.
Later on the company can decide to update and change its constitution.
Why act now?
During this transition period companies have the opportunity to act now and immediately get the benefits of being a LTD and updating their constitution.
You might also want to take the opportunity to review the company’s existing rules and decide whether there is any need to put in place a shareholders agreement or whether now is the time to put in place succession plans for the future of the company.
If you have any company law query please contact Michelle McLoughlin.
The material in this article is for general information purposes only and does not constitute legal or taxation advice. Specific legal and taxation advice should be sought before acting.
All information and taxation rules are subject to change without notice.
No liability whatsoever is accepted by M. McLoughlin & Co. for any action taken in reliance on the information in this article.
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