Decision Notice D/2002/1 The Principal Duties and Powers of Members and Shareholders under the Companies Acts 1963-2001 www.odce.ie Information Book 4 - Members and Shareholders
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Decision Notice D/2002/1
The Principal Duties and Powers of
Members and Shareholdersunder the Companies Acts 1963-2001
For further information contact:
Office of the Director of Corporate Enforcement
16 Parnell Square
Dublin 1
(01) 858 5800
LoCall 1890 315 015
(01) 858 5801
www.odce.ie
www.odce.ie
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Decision Notice D/2002/1
Information Book 4The Principal Duties and Powers of
Members and Shareholdersunder the Companies Acts 1963-2001
COPYRIGHT STATEMENT
The contents of this document are the copyright of the Director of CorporateEnforcement. Nothing herein should be construed as a representation by, oron behalf of, the Director of Corporate Enforcement as to his understandingor interpretation of any of the provisions of the Companies Acts 1963 to2001 or as to the interpretation of any law.
Independent legal advice should be sought in relation to the effects of anylegal provision. The Director of Corporate Enforcement accepts no responsibility or liability howsoever arising from any errors, inaccuraciesor omissions in the contents of this document. The Director reserves theright to take action, which may or may not be in accordance with theprovisions of this document.
Contents
1.0 Introduction 2
2.0 Principal Duties and Powers of Members and Shareholders 3
2.1 What is a Member 3
2.2 What is a Shareholder 4
2.3 Duties of Members and Shareholders 4
2.4 Rights and Powers of Members and Shareholders 42.4.1 Transfer of Shares 42.4.2 Right to a Dividend 42.4.3 Shareholders’ Statutory Pre-emption Rights (Private Companies only) 52.4.4 Right to Participate in a Winding Up 62.4.5 Rights Regarding Members’ Meetings 6
• Annual General Meetings (AGM)• Extraordinary General Meetings (EGM)• Resolutions• Right to Notice of Meetings• Polls• Proxies
2.4.6 Members’ Right to Information 8
2.4.7 Members’ Powers where the Company is in Default 9
2.4.8 Right of Members to Apply for the Restoration of a Company which has been Struck Off the Register of Companies 9
2.4.9 Members’ Right to Seek an Investigation of a Company 9
2.4.10 Right to Petition for the Winding Up of a Company 10
2.4.11 Right to Petition for Relief in Cases of Oppression 10
3.0 Penalties Under the Companies Acts 11
3.1 Penalties for Criminal Offences 11Court Imposed PenaltiesAdministrative Fines
3.2 Civil Penalties 11DisqualificationRestrictionStrike Off
4.0 Useful Addresses 12
Appendix A Classes of Shares 13
IntroductionOrdinary SharesPreference SharesRedeemable SharesBonus Shares O
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1.0 Introduction
The Companies Acts 1963-2001 containextensive provisions detailing how theaffairs of companies are to beconducted. These provisions describehow the various participants incompanies should discharge their dutiesand obligations. In addition, partici-pants are accorded substantial rightsand powers in order to enable them toassert their rights and, if necessary,defend their personal and/or corporateinterests.
The Director of Corporate Enforcementis of the view that the extensive require-ments of the Companies Acts make itdifficult for many non-professionalparticipants in company affairs to bewell informed of their rights and obliga-tions under the law. This has, in part,contributed to an inadequate standardof compliance with company law in thepast.
Section 12(1)(b) of the Company LawEnforcement Act 2001 specifies that afunction of the Director is “toencourage compliance with theCompanies Acts”. Consistent with thisremit, the Director issued aConsultation Paper setting out theprincipal duties and powers ofcompanies, company directors,company secretaries, members &shareholders, auditors, creditors,liquidators, receivers and examinersunder the Companies Acts 1963-2001.The responses received in response tothe Consultation Paper were reviewed indetail and, following that review, thecomments and suggestions made by thevarious contributors were, as far as ispracticable, taken into account.
The resulting guidance has beenprepared in the form of a series ofinformation books. There are informa-tion books on the following topics:
Information Book 1 – Companies
Information Book 2 – CompanyDirectors
Information Book 3 – CompanySecretaries
Information Book 4 – Members andShareholders
Information Book 5 – Auditors
Information Book 6 – Creditors
Information Book 7 – Liquidators,Receivers andExaminers
In addition to information on therelevant duties and powers, each bookcontains information on the penaltiesfor failure to comply with the require-ments of the Companies Acts and usefuladdresses and contact points.
Each book has been prepared for use bya non-professional audience in order tomake the main requirements ofcompany law readily accessible andmore easily understandable.
The Director of Corporate Enforcementconsiders it important that individualswho take the benefits and privileges ofincorporation should be aware of thecorresponding duties and responsibili-ties. These information books aredesigned to increase the awareness ofindividuals in relation to those dutiesand responsibilities.
The Director wishes to make clear thatthis guidance cannot be construed as adefinitive legal interpretation of therelevant provisions. Moreover, it mustbe acknowledged that the law is open todifferent interpretations. Accordingly,readers should be aware that there areuncertainties in how the Courts willinterpret the law, particularly when thelaw is applied to the specific circum-stances of specific companies andindividuals.
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It is important to note that wherereaders have a doubt as to their legalobligations or rights, they should seekindependent professional legal oraccountancy advice as appropriate.
As changes are made to company law inthe future, the Director intends to keepthis guidance up to date. He alsowelcomes comment on its content, sothat future editions can remain asinformative as possible.
Office of the Director of CorporateEnforcement
November 2002
2.0 Principal Duties and Powers ofMembers and Shareholders
2.1 What is a Member
The initial subscribers to a company’smemorandum of association are deemedto have agreed to become ‘members’ ofthe company. Any other person whoagrees to become a member of acompany and whose name is entered inits register of members will become amember of the company. Essentially, amember is a person who participates inthe capital of a company and isregistered as such.
The register of members is a registerwhich must be kept by every company1.The register must ordinarily be kept atthe company’s registered office.However, it may be kept elsewhere(although not outside the State) for thepurposes of being updated etc. Everycompany is required to notify theRegistrar of Companies of the locationat which the register is kept and of anychange in that address.
The register is open to inspection toevery member free of charge and to anymember of the public on payment of asmall fee. It must set out the followinginformation:
• members’ names;
• members’ addresses;
• number of shares held by eachmember (in the case of companieshaving a share capital);
• the date on which each person wasentered in the register;
• the date on which each personceased to be a member of thecompany.
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31 Section 116 Companies Act, 1963 as amended by section 20 Companies (Amendment) Act, 1982
2.2 What is a Shareholder
A shareholder is a person who holds ashare or shares in a company. Amember of a company which is limitedby shares must be a shareholder in thecompany. In practical terms, ashareholder will invariably be a memberof a company. However, it should benoted that a person who purchasesshares in a company, while being ashareholder from the date of purchase,will not become a member of thecompany until their name is entered intothe register of members.
A company may be permitted by itsmemorandum and articles of associationto issue different classes of shares whichmay differentiate between the rights ofthe shareholders in the company.Further details on the classes of shareswhich may be issued are set out inAppendix A.
2.3 Duties of Members and Shareholders
The principal duty of a member who isa shareholder in a limited liabilitycompany with share capital is to pay thecompany any outstanding amount ofthe purchase price agreed for the sharesallotted to him or her. This sumbecomes payable either where thecompany makes a call for funds or, incircumstances where the terms of issueof the shares provide for the payment ofinstalments, on the payment date.
Shareholders in a company withunlimited liability are liable withoutlimit for the debts of the companywhere it is insolvent i.e. unable to payits debts. Readers should refer toInformation Book 1 dealing withCompanies for further information onlimited and unlimited liability and sharecapital.
2.4 Rights and Powers of Members andShareholders
The articles of association of a companyset out the powers of members andthose powers which are delegated by themembers to the directors of thecompany.
The articles generally provide that thebusiness of the company is managed bythe directors, subject to the provisionsof the articles of association and to suchdirections given by the members in ageneral meeting.
A number of fundamental matters mustbe ratified by the members, such as analteration of the company’s articles ofassociation. By amending the articles ofassociation, members can alter theirrelationship with the directors.
2.4.1 Transfer of Shares
A member’s shares in a company aretransferable personal property. In aprivate company however, restrictionsmust be placed on the transfer of shares(see section 2.4 of Information Book 1for further information on privatecompanies). This restriction is normallyimplemented by granting the directorsof a private company the discretion torefuse to register the transfer of sharesto a person of whom they do notapprove and/or requiring theshareholder who wishes to sell theirshares to first offer those shares for saleto the existing members of the company.
2.4.2 Right to a Dividend
A dividend is a distribution of certain ofthe company’s assets to its shareholders(see below). Dividends can only beproposed by the directors. Where thedirectors propose a dividend, it mustthen be approved by the members.
There is no legal obligation on acompany to declare a dividend evenwhere there are sufficient distributable
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profits available, unless its articles ormemorandum of association require itto. However, once a final dividend (i.e.as opposed to an interim dividend) isdeclared on a shareholder’s share, thatshareholder is entitled to payment andin the event of non-payment can sue thecompany for arrears in the same way asany ordinary creditor may sue for adebt.
A dividend can only be paid out of acompany’s profits which are availablefor distribution. The profits availablefor distribution are the company’s netaccumulated realised profits. In simpleterms this means that only thecompany’s aggregate profits less lossescan be used to pay dividends. Othercompany profits and reserves, forexample:
• unrealised profits i.e. profits whichhave not as yet crystallised, or;
• share premium i.e. any premiumcharged over and above thenominal value of a share on issue
cannot be used for the purposes ofpaying a dividend.
A public limited company (plc) can onlymake a distribution where its net assets(i.e. assets less liabilities), following thedistribution, are not less than theaggregate of its called-up share capitaland its undistributable reserves(undistributable reserves are certainreserves that are not permitted to bedistributed e.g. share premium).
2.4.3 Shareholders’ Statutory Pre-emption Rights (Private CompaniesOnly)
Section 23 of the Companies(Amendment) Act, 1983 gives theexisting members of a private companya statutory ‘pre-emption’ right. Thismeans that, where new shares in thecompany are issued, the existingshareholders have an automatic right offirst refusal to purchase these shares in
proportion to their existing sharehold-ings. Parties other than the existingshareholders will, therefore, only beentitled to purchase newly issued sharesin the company if the existingshareholders decline to exercise theirpre-emption rights.
Under the statutory pre-emptionscheme, the offer of shares to theexisting shareholders must be served tothe members in the same manner asnotices of general meetings and mustprovide a period of not less than twentyone days during which the offer can beaccepted and during which the offercannot be withdrawn2.
The statutory pre-emption rights set outabove can generally be removed by thememorandum of association, the articlesof association or by a special resolutionof the company (a special resolution is aresolution passed by 75% of thosemembers voting). However, where aresolution to this effect is to be putbefore a meeting of the company, inaddition to the notice of the meeting,the directors must also furnish themembers with a written statementexplaining their reasons for theproposed departure from the statutorypre-emption scheme.
Statutory pre-emption rights are notgiven:
• to the holders of preference shares(see Appendix A for an explana-tion of preference shares);
• where the allotment is an allotmentof preference shares
• where the allotment of shares is inrespect of an employees’ sharescheme;
• where the allotment is to be paidfor, either wholly or partly, in non-cash consideration;
• as stated previously, where thememorandum or articles of associ-ation of a private company, or a
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52 Section 23(7) and 23(8) Companies (Amendment) Act, 1983
special resolution of a generalmeeting of the company, excludethe operation of section 23 of theCompanies (Amendment) Act,1983.
2.4.4 Right to Participate in a Winding-Up
A shareholder has the right to partici-pate in the winding up of a company (awinding up is the orderly terminationresulting in the legal dissolution of thecompany). Once the creditors andexpenses of the liquidator (theliquidator is the person appointed toconduct the dissolution of the company)have been paid, any remaining funds arereturned to the shareholders in propor-tion to their shareholdings, unless thearticles of association provide otherwise.
2.4.5 Rights Regarding Members’Meetings
The members of a company exercisecontrol over the company at itsmeetings. The main statutory provisionsconcerning meetings of a company areset out at sections 131 to 146 of theCompanies Act, 1963 (as amended). Allcompanies, except single membercompanies, must in each year hold anannual general meeting (AGM) and notmore than fifteen months should elapsebetween AGMs3.
Annual General MeetingsAt an AGM, a company will generallyconsider ordinary business, such as:
• the directors’ recommendation todeclare a dividend, if a recommen-dation has been made;
• the financial statements, thedirectors’ report and the auditor’sreport (where applicable);
• the election of persons as directorsin the place of those retiring;
• the re-appointment of the outgoingauditors or the appointment ofnew auditors and the fixing of
auditors’ remuneration;
• other business, such as theamendment of the memorandum orarticles of association of thecompany, which is known asspecial business (and whichrequires the tabling of specialresolutions – see section onResolutions below).
A member of the company can apply tothe Director of Corporate Enforcementto call or direct the convening of anAGM where one is overdue4.
Extraordinary General MeetingsAny meeting of a company which is notan AGM is known as an extraordinarygeneral meeting (EGM). Directors maygenerally call an EGM where they seefit, for example where they wish toobtain the prior approval of membersbefore taking a certain course of action.In addition, the directors are obliged toconvene an EGM in certain circum-stances e.g. where the company’s netassets (i.e. total assets less total liabili-ties) have fallen to 50% or less of itscalled-up share capital5.
A member or several members of acompany, who together hold not lessthan 10% of the paid up share capitalwith voting rights in the company or inthe case of a company not having ashare capital, representing not less than10% of the voting rights of thecompany, can requisition the directorsof the company to call an EGM. To doso, they deposit a signed requisition atthe company’s registered office, statingthe objects (i.e. purpose) of the EGM6.Once this is done, the directors mustconvene an EGM within 21 days of thedate of requisition, and the meetingmust be held within two months.
If the directors do not do so, the requisi-tionists or any of them representing overhalf the voting rights of the requisition-ists may themselves convene a meetingwhich must be held within three months
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3 Under the provisions of article 8 the European Communities (Single Member Private Limited Companies) Regulations, 1994 (S.I. 275 of 1994), the sole member of a single member private limitedcompany can decide to dispense with the holding of an annual general meeting of the company. See also Appendix F to Information Book 1 for further information on Single-Member Private LimitedCompanies.
4 Section 131(3) Companies Act, 1963 as amended by section 14 Company Law Enforcement Act, 20015 Section 40(1) Companies (Amendment) Act, 19836 Section 132 Companies Act, 1963
of the date of deposit of the requisition.
Where it is impractical to call a generalmeeting or to conduct the meeting inaccordance with the articles of associa-tion or the Companies Acts, anymember entitled to vote at the meetingmay apply to the High Court, and theCourt may order that such a meeting beheld in such a manner as it thinks fit7.The Court can, for instance, declare thata meeting can take place with only onemember of the company present.
ResolutionsDecisions of the members at a generalmeeting are made by resolution. Allresolutions must be passed inaccordance with the requirements of theCompanies Acts and the articles ofassociation. Most of the standardbusiness conducted at AGMs (e.g.consideration of the company’s financialstatements, election of directors andauditors, etc.) is carried out by way ofordinary resolution, which merelyrequires a simple majority i.e. a majorityof in excess of 50% of those membersvoting.
Special resolutions are used to conductcertain business at EGMs and anyspecial business at AGMs, such as thealteration of the articles of association.For special resolutions, a qualifiedmajority of 75% is required8.
In the case of a single member company,the requirement to pass a resolution isreplaced by a procedure whereby awritten decision is taken by the solemember.
Right to Notice of MeetingsAt least 21 days’ notice must be given inwriting of an AGM. In the case of anEGM, 7 days’ notice is required forprivate companies and 14 days forpublic companies9. However, 21 days isusually required in order to pass aspecial resolution, unless 90% of themembers of the company agree to
shorter notice10. The 7 day period(private companies) can be shortenedwhere the members and the company’sauditors agree to such shorter notice.
Extended notice of 28 days must begiven under the following circum-stances:
• where a resolution to remove adirector is proposed, unless thearticles of association of thecompany provide otherwise11, or;
• where a resolution to replace anauditor is proposed at an AGM ora resolution to remove an auditorbefore the expiration of his term ofoffice is proposed12.
To be valid, a meeting must be properlyconvened by notice, a quorum must bepresent (i.e. a minimum number ofmembers), and the meeting must bepresided over by a Chairman. A quorumis generally fixed at two members in thecase of a private company and three inthe case of a public company. Specialresolutions and certain other significantresolutions must be forwarded by thecompany to the Registrar of Companieswithin 15 days of their being passed.
Where a company’s articles of associa-tion so provide, a resolution in writingsigned by all of the members entitled toattend and vote on such a resolution ata general meeting is as valid andeffective as if the resolution had actuallybeen passed at a general meeting.
PollsTable A of the First Schedule to theCompanies Act,1963 sets out a standardset of Articles of Association. Onincorporation a company can choose touse these articles or, alternately, to drawup its own.
The standard articles provide that everyresolution shall be decided by a show ofhands unless a poll is demanded. Thestandard articles then go on to set outwhen, and by whom, a poll may be
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7 Section 135 Companies Act, 19638 A qualified majority of 75% means 75% of the votes cast (section 141 Companies Act, 1963)9 Section 133 Companies Act, 196310 Section 141 Companies Act, 196311 Section 182(2) Companies Act, 196312 Section 161(1) Companies Act, 1963
demanded. Unless a poll is demanded, adeclaration by the Chairman that aresolution has been carried or lost on ashow of hands will be conclusiveevidence of the proceedings.
Under the standard articles of associa-tion, a poll (vote) may be demanded asfollows:
• by the Chairman of the meeting,or;
• by at least three members in personor in proxy13, or;
• by any member or memberspresent in person or by proxy andrepresenting not less than one tenthof the total voting rights of all themembers having a right to vote atthe meeting, or;
• by a member or members holdingshares conferring voting rights,being shares on which an aggregatesum has been paid up equal to atleast 10% of the total amount paidup on all voting shares.
The members of a company can ofcourse alter the terms of the standardarticles of association on incorporationor subsequently (provided that 75% ofthe members agree). However, wherethe articles are amended with regard towhen a poll can be demanded, anychanges will be void if they seek to haveany of the following effects on entitle-ment to demand a poll14:
• to exclude the right to demand apoll at a general meeting (otherthan on the election of a Chairmanand on the adjournment of themeeting)
• to make ineffective a demand madeby any of the following parties:
– not less than 5 members havingthe right to vote;
– a member or membersrepresenting not less than onetenth of the total voting rights of
all the members having a right tovote, or;
– a member or members holdingshares in the company conferringa right to vote, being shares onwhich an aggregate sum has beenpaid up equal to not less thanone tenth of the total sum paidup on all shares conferring thatright.
ProxiesAny member of the company who isentitled to vote at a general meeting ofthe company can appoint a ‘proxy’. Aproxy is a person nominated by themember to attend the meeting and toexercise the member’s vote on theirbehalf. A proxy is also entitled to speakat the meeting on behalf of the member.
Under the standard form articles (as setout in Table A), the followingprovisions apply to proxies:
• the proxy must be nominated inwriting and the nomination mustbe signed by the member if onbehalf of an individual;
• if the proxy is nominated on behalfof a company, the appointmentmust be stamped with the companyseal;
• the appointment must be furnishedto the company at least 48 hoursprior to the meeting.
2.4.6 Members’ Right to Information
A member of a company has the rightto certain information concerning thecompany. Members are entitled, interalia, to:
i. a copy of the memorandum andarticles of association of thecompany and any Act of theOireachtas which alters thememorandum. Prospectivemembers should read a company’smemorandum and articles ofassociation in order to apprise
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813 A proxy is someone nominated by a member to exercise their vote on their behalf – see also next section: Proxies14 Section 137 Companies Act, 1963
themselves of their rights asmembers and the company’s rulesand powers;
ii. inspect and obtain copies of theminutes of general meetings andresolutions;
iii. inspect and obtain copies of thevarious registers kept by thecompany, including the register ofmembers, the register of directorsand secretaries and the register ofdirectors’ and secretary’s interests;
iv. obtain a copy of the unabridgedfinancial statements, directors’report and auditors’ reports (whereapplicable);
v. obtain copies of the unabridgedfinancial statements of anysubsidiary company for thepreceding ten years.
2.4.7 Members’ Powers where theCompany is in Default
Where a company or any of its officersis in default in complying with anyprovision of the Companies Acts, amember can serve a notice on thecompany requiring the default to bemade good within 14 days. If thecompany or officer fails to make goodthe default, a member can apply to theHigh Court for an order directing thecompany or officer to make good thedefault15. The Director of CorporateEnforcement also has the power toapply to the Court for this remedy.
2.4.8. Right of Members to apply forthe Restoration of a Company whichhas been Struck Off the Register ofCompanies
A company can be struck off theregister of companies by the Registrar ofCompanies under the following circum-stances:
• where the company has failed tomake an annual return;
• where the company has failed to
make a statement of its particularsto the Revenue Commissioners, or;
• where the company is not carryingon business.
Where a company is struck off as aconsequence of failing to file an annualreturn the liability, if any, of everydirector, officer and member of thecompany continues and may beenforced as though the company hadnot been dissolved16.
If any member (or officer or creditor) ofthe company is aggrieved at thecompany’s strike off, they can apply tothe Registrar of Companies for therestoration of the Company within 12months of the strike off. Provided thatthe Registrar is satisfied that alloutstanding documents have been filedand all outstanding fees paid, he canrestore the company to the register17.Where the Registrar restores thecompany to the register, the company isdeemed to have continued in existenceas though it had not been struck off.
After the 12 months period referred toabove has expired, any member (orofficer or creditor) of the company canapply to the High Court to have thecompany restored to the register(provided that the application is madewithin 20 years of strike off). Where theCourt is satisfied that it would be just torestore the company to the register, thecompany is deemed to have continuedin existence as though it had not beenstruck off. However, the Court can alsoorder, if it considers it appropriate, thatthe officers (or any one of them) be heldpersonally liable for any debts incurredby the company during the period ofstrike off18.
2.4.9. Members’ Right to Seek anInvestigation of a Company19
Certain qualifying members, namely:
• one hundred members of acompany, or;
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15 Section 371 Companies Act, 1963 as amended by section 96 Company Law Enforcement Act, 200116 Section 12B(1) Companies (Amendment) Act, 1982 as inserted by section 46 Company Law Enforcement Act, 200117 Section 12C(1) Companies (Amendment) Act, 1982 as inserted by section 46 Company Law Enforcement Act, 200118 Section 12(B)(4) Companies (Amendment) Act, 1982 as inserted by section 46 Company Law Enforcement Act, 200119 Section 7 Companies Act, 1990 as amended by section 20 Company Law Enforcement Act, 2001
• those holding 10% or more of thepaid up share capital of thecompany (or in the case of acompany not having a sharecapital, at least 20% of themembers)
can apply to the High Court for theappointment of one or more Inspectorsto investigate and report on the affairsof a company. Where the Courtappoints an Inspector, it specifies theprecise matters into which inquiriesshould be made. Where members makesuch an application, they may berequired to give security to cover thecosts of the investigation. The securityrequired by the Court cannot be lessthan €6,350 (IR£5,000) and cannotexceed €317,400 (IR£250,000).Inspectors appointed under this sectiontake their directions from, and reportto, the High Court.
2.4.10 Right to Petition for the WindingUp of a Company
A member has the right to petition theHigh Court for the winding up of acompany on a number of grounds20
(subject to certain exceptions). Amember will usually exercise this rightwhere, for example:
• there is a deadlock in the manage-ment of the company;
• where the objectives of thecompany can no longer beachieved;
• where the company has illegalobjects;
• where the company is being usedas an instrument of fraud;
• where the company has a smallnumber of members who no longerwish to conduct business with eachother.
2.4.11 Right to Petition for Relief inCases of Oppression21
A member cannot bring proceedings tooverturn a decision of the companywhere that decision could be ratified bya majority of its members. However, amember of a company can petition theHigh Court for relief where theyconsider that the affairs of the companyare being conducted, or the powers ofthe directors are being exercised, in amanner oppressive to that member or toany of the members or is in disregard oftheir interests as members.
Oppressive conduct is the exercise of thecompany’s authority in a manner whichis burdensome, harsh and wrong. Thetypes of conduct which might give riseto such an application include fraudu-lent and unlawful transactions, oppres-sive management and exclusion of themember from the management of thecompany.
In order to bring oppressive conduct toan end, the Court has wide discretion asto the remedies it can order, including:
• the purchase of the petitioner’s orrespondent’s shares;
• the purchase by the company itselfof the shares;
• the cancellation or variation oftransactions or the alteration ofconstitutional documents.
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1020 Section 213 Companies Act, 1963 as amended by paragraph 17 of the first schedule and the third schedule of the Companies (Amendment) Act, 1983 and section 93 Company Law Enforcement Act,
200121 Section 205 Companies Act, 1963
3.0 Penalties Under theCompanies Acts
3.1 Penalties for Criminal Offences
Court Imposed Penalties
Under the Companies Acts, provision ismade for two types of criminal offence,namely summary and indictableoffences. A summary offence isgenerally of a less serious nature and istried before a judge only in the DistrictCourt. Indictable offences are generallyof a more serious nature. Indictableoffences can, in the same way assummary offences, be tried in theDistrict Court before a judge only.However, the distinction between asummary offence and an indictableoffence is that, due to their more seriousnature, indictable offences can also betried in the Circuit Court i.e. before ajudge and jury. Where this course istaken, the indictable offence is said tobe prosecuted on indictment.
Where an offence is prosecuted onindictment, the penalties provided forby the law on conviction are generallyconsiderably higher than had theoffence been prosecuted summarily.
In general the maximum penalty onconviction:
• of a summary offence under theCompanies Acts is €1,900 and/or12 months imprisonment, and;
• of an indictable offence under theCompanies Acts is €12,700 and/or5 years imprisonment.
However, the Companies Acts alsoprovide for considerably highersanctions in respect of certain offencese.g. fraudulent trading (€63,000 and/or7 years imprisonment on conviction onindictment) and insider dealing(€254,000 and/or 10 years imprison-ment on conviction on indictment).
Administrative Fines
Under the provisions of the CompanyLaw Enforcement Act, 2001, theDirector of Corporate Enforcement alsohas the discretion to impose an adminis-trative fine rather than initiating asummary prosecution. Where theDirector chooses this course of action,provided that the fine is paid and thedefault in question is remedied within21 days, no prosecution will ensue22.
3.2 Civil Penalties
Disqualification
In addition to fines and penalties, thereare also provisions for other sanctionsunder the Acts. Persons convicted onindictment of an indictable offencerelating to a company or involvingfraud or dishonesty are automaticallydisqualified from acting as companydirectors/officers (see Appendix B toInformation Book 2 – CompanyDirectors).
The Director of Corporate Enforcementcan also apply to the Courts seeking thedisqualification of any person:
• guilty of two or more offences offailing to maintain proper books ofaccount, or;
• guilty of three or more defaultsunder the Companies Acts.
Restriction
The provisions relating to the restrictionof company directors apply to insolventcompanies i.e. companies that areunable to pay their debts as they falldue. Where a company which goes intoliquidation or receivership23 is insolvent,a director of the company who fails tosatisfy the High Court that he or shehas acted honestly and responsibly willbe restricted for a period of up to fiveyears.
Such a restriction prevents a personfrom being a director or secretary or
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22 Section 109 Company Law Enforcement Act, 200123 A liquidator’s function is to collect and realise the assets of the company, to discharge the company’s debts, to distribute any remaining surplus, investigate the company’s affairs and to legally dissolve the
company. The function of a receiver is to dispose of certain assets of the company in order to allow the repayment of a debt to a creditor e.g. a bank. See Information Book 7 for further information onliquidators and receivers.
being involved in the formation orpromotion of any company unless it isadequately capitalised. In the case of aprivate company, the capital require-ment is €63,487 (£50,000) in allottedpaid up share capital, and in the case ofa public company, €317,435(£250,000). Such a company is alsosubject to stricter rules in relation tocapital maintenance. The topic ofrestriction is dealt with in detail inAppendix B to Information Book 2.
Strike Off
Where a company defaults inperforming certain of its legal obliga-tions e.g. fails to file an annual returnwith the Registrar of Companies, theRegistrar can strike the company off theregister of companies.
If struck off the register, ownership of acompany’s assets automatically transfersto the State. Ownership will remainwith the State until such time as thecompany is restored to the register.While struck off, the liability of everydirector, officer and member of thecompany continues and may beenforced as though the company hadnot been dissolved24.
The procedures required to have acompany reinstated to the register aredealt with in Appendix A toInformation Book 1.
4.0 Useful Addresses
Office of the Director of CorporateEnforcement,16 Parnell Square,Dublin 1.Tel: 01 858 5800 Web: www.odce.ie
Companies Registration Office14, Parnell Square,Dublin 1.Tel: 01 804 5200Web: www.cro.ie
Department of Enterprise, Trade &Employment,Kildare Street,Dublin 2.Tel: 01 631 2121Web: www.entemp.ie
Company Law Review Group,Earlsfort Centre,Hatch Street Lower,Dublin 2.Tel: 01 631 2763Web: www.clrg.org
BasisBusiness Access to State Information &ServicesWeb: www.basis.ie
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1224 Section 12B(1) Companies (Amendment) Act, 1982 as inserted by section 46 Company Law Enforcement Act, 2001
Appendix AClasses of Shares
Introduction
The rights and duties of a member willdepend on the articles of association ofthe company. Certain rights accrue onlyto members who are shareholders in acompany. A member of a companylimited by shares must be a shareholderin the company. Where a company has ashare capital, it is presumed that allshares have equal rights but thecompany may in its memorandum orarticles of association create a power toissue different classes of shares,including ordinary, preference andredeemable shares.
Ordinary Shares
Ordinary shares generally carry theright to a vote. Where a company iswound up they generally have a right toparticipate in any surplus funds (i.e.when all creditors have been discharged)beyond the fixed amount which theyoriginally invested in their shares.
Where ordinary shares carry weightedor differing levels of voting power, butcarry equal entitlements in respect ofdividends and capital, they are normallydivided into classes e.g. Ordinary SharesClass A, Ordinary Shares Class B etc.
Preference Shares
Preference shares carry preferentialrights, most commonly as to dividend orcapital. A share which is preferred as todividend usually entitles the member tobe paid his or her dividend in priority tothe ordinary shareholders. Preferenceshareholders’ entitlements to dividendsare generally expressed as a right to apercentage per annum of the nominalamount of the share. A share which ispreferred as to capital entitles themember to have his or her capitalinvestment in the company repaid in full
before the ordinary shareholders arereturned their capital in a winding up.
Redeemable Shares
Redeemable shares are shares which thecompany is entitled to redeem (i.e. buyback) from its members. Where sharesare redeemed, the company generallycancels them. However, a treasury shareis a share which is retained on redemp-tion by the company and cansubsequently be re-issued.
Bonus Shares
Bonus shares are shares issued to theshareholders in proportion to theirexisting shareholdings. They are issuedas having been fully paid up i.e. theshareholders are not required to pay forthem. They are usually paid fromaccumulated profits that have beentransferred to capital i.e. capitalised.
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