By Éirinn Heery, 23rd October 2024
In today’s fast-paced business landscape, adapting to regulatory changes is crucial for maintaining competitiveness and ensuring compliance. For Irish companies, the shift to new private company structures presents both challenges and opportunities. Whether you are considering a conversion to take advantage of simplified governance or to align with modern practices, understanding the conversion process and its implications is essential. This blog will explore the benefits of company conversion in Ireland, the key steps involved, and why this transformation could be pivotal for your business’s future.
Company Conversion in Ireland
Registered companies when it commenced back in June 2015, introducing significant changes aimed at simplifying the operation of corporate entities in Ireland. One of the most notable features of the Act was the introduction of two new forms of private companies limited by shares, designed to provide flexibility and streamline company operations which would in turn, offer benefits such as a simplified structure with greater capacity. With these new forms of Private Companies Limited by Shares (LTD) and Designated Activity Companies (DAC) came new regulations such as the conversion to an updated constitution that provides such flexibility for Irish companies.
The old format of a private company limited by shares was phased out 18 months after the Companies Act came into effect, during what is known as the ‘transitional period.’ To comply with the new regulations, existing private companies limited by shares were given options for conversion to either the new LTD or DAC company type.
Option 1: Convert to an LTD – This option allows companies to transition to a new, simplified model of a Private Company Limited by Shares (LTD), featuring a single constitutional document and unrestricted legal capacity.
Key characteristics include:
- No objects clause, granting unrestricted legal capacity to participate in any lawful business or activity.
- No requirement for authorised share capital.
- The option to have a single director.
- The authority to dispense with holding a physical AGM each year, whether the company has one or multiple members, by overseeing relevant matters through written resolution.
Option 2: Convert to a DAC – This option is similar to the form of a private limited company that existed under the old Companies Acts. A Designated Activity Company (DAC) will retain a memorandum and articles of association, along with an objects clause that limits its legal capacity to the exact activities outlined in the company’s constitution.
For limited companies that have not updated their Memorandum and Articles of Association to a modern constitution, the existing documents are now considered their constitution, with the exception of the objects clause. However, this may cause issues for the company as its legal governing document references legislation that no longer exists. LTDs that have not updated their constitution cannot enjoy the benefit of the Companies Act 2014 in relation to single director boards for example. This is due to the 2-director minimum requirement.
Reasons Why a Company Conversion May be Necessary
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Company name change
A company will not be in a position to change its name until a constitution is in place. In order to change your company’s name, a special resolution will need to be passed. Once the new constitution is in place, the company must hold a meeting where shareholders pass a special resolution to approve the change of name. This resolution must be passed in accordance with the procedures specified in the company’s existing constitution and the CA 2014. Without a new constitution adopted under the CA 2014, a company cannot proceed with changing its company name with the CRO.
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Availing of Bank facilities
- To ensure compliance with legal and regulatory requirements, the company must have a constitution that adheres to the stipulations outlined in the Companies Act 2014 to open a bank account. Financial institutions will require a copy of the company’s constitution to open a bank account.
- When arranging or agreeing to a loan, both the financial institution and state bodies will need to review the company’s constitution. The document must be compliant with the Companies Act 2014 to proceed with loan transactions.
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The company has not updated its constitution in multiple years as it was established prior to the enactment of the Act in June 2015.
The company should review its existing documents and consider consulting with corporate governance experts to draft and adopt a new constitution that aligns with the current standards and practices. This will ensure its governance structures and practices adhere to current legal requirements and will minimise compliance risks associated with outdated constitutional provisions. Not to mention, modernising its internal rules and procedures. The company can reflect on its current operational realities and plan strategically to work towards its future objectives in a compliant matter.
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The company wishes to change its activity.
The Companies Act 2014 requires a declaration that outlines the nature of the company’s business activity. If this activity were to be altered and the company has not updated its constitution, this amendment cannot be made until a new constitution has been adopted. Any changes to the company’s economic activities cannot be legally recognised until the company’s constitution has been updated accordingly. This ensures that the company’s governing documents accurately reflect its current operations.
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Shareholders wish for the company to be brought up to date.
The members of a company hold an integral part of its being and should feel that the company directors are operating in good faith to ensure the proper running of the company. Furthermore, members can seek remedy from the courts if they feel their rights as members have been prejudiced by the company taking no action to update its constitution.
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The company requires the power of a new provision in the Companies Act 2014.
To fully benefit from the provisions of the Companies Act 2014, a company must adopt a new constitution. By adopting the new constitution, companies can avail of unlimited authorised share capital. This can provide greater flexibility in raising funds and structuring the company’s capital. The act also allows a company to operate with a single director, which simplifies governance and management for smaller or owner-managed businesses. This can be recognised as a huge benefit for small business owners.
In summary, adopting a new constitution by way of conversion is essential for companies that wish to reap the rewards offered by the Companies Act 2014. This process ensures that the company’s governance framework is current and in compliance with the latest legal standards. If you need assistance with Converting your Company, please do not hesitate to contact our team at Company Bureau. Give us a call at +353(0)1 6461625 or complete our online contact form.
Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.