Conversion to the new simplified model of the Private Limited Company

Posted by Van Geraghty on Sunday, 19 April 2015

Company Secretarial Services | Corporate Governance | Compliance

Tel: +353 (0) 505 34101 Email: vgeraghty@komsec.ie

 

Conversion to the new simplified model of the Private Limited Company

Transition Period

The new Companies Act 2014 will require all companies to make key decisions during the coming months.  There will be an 18 month “transition” period during which companies must decide to convert to the new simplified model of the Private Limited Company or a Designated Activity Company. It is expected that most companies will choose to convert to the new private company limited by shares.  This blog will focus on conversion to simplified model of the Private Limited Company only. Conversion to the Designated Activity Company will be dealt with in a separate blog.

Your company will need to consider provisions of the Companies Act, review existing Articles of Association to decide what provisions need to be included in your company’s new constitution.

What’s the status of my Company during the Transition Period?

Until your company has converted, it will be deemed as a Designated Activity Company and cannot avail of the reforms of the Act.  Where Table A has been adopted (in full or part), these provisions will apply during the transition period, even though the Companies Act 1963 – 2013 will have been repealed.

How does my Private Limited Company Re-register as a new Private limited Company?

Your private limited company can convert in one of the following three ways

1. (S59) Members - The Company adopts a new constitution by way of a special resolution ensuring it is passed in accordance with the company’s existing Memorandum and Articles and adopts a new Constitution.
2. (S60) Directors - The Directors adoption of a new constitution is limited to consisting of provisions of its existing Memorandum and Articles excluding the objects clause and clauses that prohibit amending all or any of the provisions of the existing articles of association.  Directors must prepare a constitution, issue to every member of the company prior to registering it with the CRO.  If the company does not do, so it faces the risk of a member(s) or creditors applying to the courts for applicable relief. The new constitution cannot alter the rights and obligations of the  members as set out the Company’s Memorandum and Articles.
3. (S61) Default Position - The Act has made provision for a default position at the end of transition period. If your company opts for the default position, it will be deemed to have become a new private limited company with a Constitution made up of provisions from of its existing Memorandum and Articles excluding the objects clauses and any or that prohibit, amending all or any of the provisions of its memorandum and articles.  If your company decides to opt for the default position – the CRO will not update your existing Memorandum and Articles of Association.

(S26) On re-registration, the CRO will issue your Company with a new Certificate of Incorporation. The company designation will be “Ltd” or “Limited” or as Gaeilge  “Teo” or “Teoranta”. 

Advantages of taking Action

• Your Company has certainty and avoids being at the mercy of default statutory provisions and a “deemed constitution”.
• Directors can avoid the obligations which would otherwise arise where the members elect to do nothing, by proactively putting a new constitution to the members to adopt;
• Companies cannot avail of any of the new provisions until conversion.
• Adoption in this way gives members freedom to revise the provisions of the act (subject to compliance with the rules on variation on class rights), it also allows the inclusion of references to the Act and adoption (or disapplication) of new optional provisions set out in the act.

Disadvantages of doing nothing:

• Your company will be treated as a DAC during the transition period.
• Members who deem their rights have been prejudiced by inaction of the company in terms of conversion options may apply to the courts for relief.
• Uncertainty and potential additional costs the Act will need to be checked for each transaction to determine the validity of the Articles.

If you would like clarification or have any questions please feel free to post a question using the comment box below.

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