The Companies Bill 2012 was first introduced by the then minister for Jobs, Enterprise and Innovation, Mr. Richard Bruton. This draft bill is currently before the Oireachtas and is expected to be enacted before the end of 2014, with implementation to follow within 6 to 9 months of enactment.
1. Overview of The Companies Bill 2012
The main purpose of the bill is to restructure and reform company legislation within Ireland and this will be achieved by the replacement of The Companies Acts 1963-2013 with one single piece of legislation, The Companies Bill. This legislation has been published in two volumes, incorporates 1,429 sections and is spread over 25 Parts. Parts 1 to 15 will cover the new model private company, to be known as Company Limited by Shares (CLS) with Parts 16 to 25 covering all other company types and miscellaneous items. Once The Companies Bill 2012 has been enacted it will be compulsory for all companies to adhere to the new legislation as The Companies Acts 1963-2013 will no longer be valid.
2. New Company Types
On enactment of The Companies Bill 2012 there will be 5 different types of companies as follows:
- CLS Company Limited by Shares
- DAC Designated Activity Company
- PLC Public Limited Company
- CLG Company Limited by Guarantee
- UL Unlimited Company
In addition to the above, Societas Europaea (European public Limited Company) will be regarded as a PLC. While the new bill provides for each of the above companies, most SME’s will adopt either the CLS or DAC models, with the majority expected to adopt CLS.
3. Key Points of Interest for The Companies Bill 2012.
Some of the key points of interest for directors of SME’s to note include the following:
- The Memorandum and Articles of Association will be replaced by a single constitution document.
- Due to the above, ultra vires (acting beyond the scope of powers granted by the company’s objectives clause) will no longer exist.
- A CLS will only require one director
- A director will continue to be able to act as the company secretary, however in a situation where the company has only one director such person is forbidden from also acting as the company secretary. This restriction can be overcome through the use of a company secretarial provider or your accountant who could act as the secretary.
- The number of shareholders can range from a minimum of 1 to a maximum of 149.
- A CLS will no longer be required to hold a physical AGM, once the written consent of all members has been obtained. Once such consent is obtained, a written AGM will be sufficient. (DAC’s will not be permitted to dispense of the requirement to hold an AGM).
- Audit Exemption Limited will remain unchanged at
- The balance sheet total does not exceed €4.4million
- Turnover does not exceed €8.8million
- The average number of employees does not exceed 50
- There is an additional benefit for groups structures included in the bill as they will now be able to avail of audit exemption, if the group, when taken as a whole, can meet the relevant requirements to claim audit exemption.
4. Making the Transition to the new company formats.
Once The Companies Bill 2012 has been enacted there will be an 18 month transition period for companies to adopt a new company model. It is expected that most companies will adopt the CLS model. a. Adopting the CLS Model. If a company wishes to adopt the CLS model, thus allowing them to avail of the new company law procedures, they will be required to pass a special resolution before the expiry of the 18 month transition period. Once the registration of the new constitution has been completed The Registrar will issue the company with a Certificate of Incorporation stating that the company is now a CLS. b. Adopting the DAC Model Where a company chooses the DAC model, which is very similar to the current structure in place, the company will be required to pass an ordinary resolution. DAC’s will retain an objectives clause and, as outlined above, will still be required to hold a physical AGM. c. No adoption of a new model If a company does not complete either of the above resolutions to convert their company to either a CLS or a DAC the provisions of the DAC will automatically apply following the 18 month transition period. In addition, the provisions of a DAC will apply to the company during the transition period.
5. Directors Duties
Duties of Directors are outlined in Part 5 of The Companies Bill 2012. It is the intention of the bill to consolidate and codify the duties of directors to make the law surrounding this area more transparent. The Bill has codified directors’ fiduciary duties into eight main duties:
- to act in good faith in what the director considers to be the company’s interests;
- to act honestly and responsibly;
- to act in accordance with the company’s constitution and to exercise powers only for lawful purposes;
- not to use company property for own or others’ use unless approved by the members or the constitution;
- not to restrict discretion unless permitted by the constitution or entered into in the company’s interests;
- to avoid conflicts of interest unless released by members;
- to exercise care, skill and diligence; and
- to have regard to interest of members.
The bill has also categorised offences, for both directors and the company itself, into four different categories, ranging from 1 to 4, with 1 being the most severe. If convicted under a category 1 offence, you may be subject to a fine of €500,000 and/or imprisonment of up to 10 years. Alternatively if convicted of a category 4 offence you may be subject to a Class A fine, not exceeding €5,000. There is an extensive variety of offenses outlined throughout various sections of The Companies Bill 2012.
The following are examples of a category 1 and category 4 offense:
- Category 1 offence - Not maintaining proper books and records.
- Category 4 offence - Using the company seal when the name of the company is not engraved in legible characters.
In summary, The Companies Bill 2012 will be compulsory for all companies within Ireland as it will be replacing The Companies Acts 1963-2013. While the bill has not yet been enacted, directors of SME’s should be reviewing the draft bill and considering which company structure they would like to adopt to ensure the relevant procedures in relation to the passing of either a special or ordinary resolution can be put in place once The Companies Bill 2012 has been enacted.
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