THE COMPANIES ACT 2014 WHAT IT MEANS FOR SMEs- DERMOT SHERLOCK Lee & Sherlock Solicitors 5-F Nutgrove Office Park Rathfarnham Dublin 14. Tel: 012960931.

THE COMPANIES ACT 2014

WHAT IT MEANS FOR SMEs-DERMOT SHERLOCK

Lee & Sherlock Solicitors

5-F Nutgrove Office Park                       RathfarnhamDublin 14. Tel: 012960931 email: [email protected]

Mob 087 9172469

The Companies Act 2014

• What is it? Some old law and some new law, packaged together to try to simplify Company Law. Great for lawyers but do you really need to know this? The simple answer is: yes

• A company is a separate legal entity and its very existence A Consolidation, restatement and amendment to all Acts directly affecting Company law

• All company law under one piece of primary legislation.

• The format means you can exclude large sections of the new law that don’t and won’t affect you

• 1st June 2015 it will begin and will affect all existing Companies.

WHO ARE YOU?

• Private Company Limited by Shares

• Group of Companies

• Company Limited by Guarantee

• Sole Trader

• Person who deals with an Irish registered Company

IMMEDIATE STEPS- EXISTING COMPANIES

• What must you do?

• Choose a designation-

• Adopt new or existing rules (the Constitution)

• What should you do?

• Review your situation and adapt to the new regime

• review your current Corporate status – Documents, Shareholder Agreements, Designation

• Adopt the model that suits you. LTD, DAC etc

• Adopt a Constitution that suits you.

• There are opportunities

ACROYNMS

PRIVATE COMPANIES• LTD -the new model form of Private

Company

LIMITED BY SHARES

• DAC - Designated activity company

• CLG - Company limited by guarantee

PUBLIC COMPANIES• PLC Public limited company

• ULC - Private unlimited company having a share capital

• PUC - Public unlimited company having a share capital 

• PULC - Public unlimited company not having a share capital

ACROYNMS COMPANIES 2 out of 3 will do

SMALL COMPANY

• Turnover less than €8.8m

• Balance sheet not more than €4.4m

• Average number of employees under 50

MEDIUM COMPANY

• Turnover less than €20m

• Balance sheet not more than €10m

• Average number of employees under 250

JARGON

• Constitution. The rules and regulations of the Company, replaces the “memorandum and articles of association”

• Financial Statements. Includes account information and necessary reports

CHANGE TO A NEW LTD COMPANY

• For private companies there is a new regime available requiring only one director and one shareholder.

• This is an attractive proposition to sole traders and one person entrepreneurs

• The tax advantages vary but well worth investigating

• The legal advantages are much more beneficial in the new Act

Which Company will you be?

• PRIVATE: LTD - Private company limited by shares DAC - Designated activity company limited by shares /limited by guarantee with share capital CLG - Company limited by guarantee 

• PUBLIC –

PLC - Public limited companyULC - Private unlimited company having a share capital PUC - Public unlimited company having a share capital PULC - Public unlimited company not having a share capita

PRIVATE COMPANY LIMITED BY SHARES

Current Private Company Limited by Shares

• Minimum of two directors

• Limited powers

• Written resolutions have to be unanimous

New LTD – Model Company Limited by shares

• Can have only one director

• Power to appoint a person entitled to bind the Company

• No “Ultra vires”. No activity is outside the power of the Company

• Does not have to hold an AGM

• Resolutions can now be passed by majority, in writing

TransitionFrom 1 June 2015 to 30 Nov 2016

• Private Company Limited by shares

• Select to be a new LTD company or Designated Activity company

• If you don’t select then during the next 18 months you cannot operate with one director

• During the 18 months the Company is subject to DAC regulations

• After 18 months the existing company will be deemed a new LTD

TransitionFrom 1 June 2015 to 30 Nov 2016

After Transition

• Can have one director only.

• Many companies have family members as non executive directors because 2 are required

• If you are a one person operation this can limits liability and exposure to spouses

COMPANY LIMITED BY GUARANTEE

Common for charities and management companies

• Relevant not only if you are active in a charity organisation or management company

• If you own an apartment or property in a managed estate

• If your business premises is in a managed development (eg holder of a Lease in a shopping centre)

NEW - COMPANY LIMITED BY GUARANTEE – CLG

• New name

• Will still have an “Objects Clause”

• Minimum 2 directors

• May have only 1 member (previous minimum was 7

• No limit on the number of permitted members

SPECIFIED DIRECTORS DUTIES

• to act in good faith, in what the director considers to be the best interests of the company.

• to act honestly and responsibly in relation to the company's affairs.

• to act in accordance with the company's constitution and to exercise powers only for lawful purposes.

• not to use company property for their own or others' personal gain unless approved by the company's members or agreed to in the company's constitution.

• not to fetter discretion unless permitted by the company's constitution or entered into in the company's interests.

• to avoid conflicts of interest.

• to exercise care, skill and diligence.

• to have regard to the interests of the company's members.

GENERAL DIRECTORS DUTIES

• Ensure compliance with the Companies Act and the various tax acts

• Ensure the Company Secretary is suitably qualified

• Sign a declaration to acknowledge their duties

• Take into account the interests of the members of the Company

• Have regard to the interest of the employees of the Company

• Disclose interests – (contracts and shares)

• Further duties such as Director’s Compliance Statement for larger companies

CONSEQUENCE OF A BREACH OF DUTIES OF DIRECTORS

• to account for any gains accrued

• Indemnify the Company for losses resulting from a breach

• A Court may grant relief it the Court is satisfied

• The Director acted honestly and responsibly

FINANCIAL STATEMENTS

• Relevant not only if you are active in a charity organisation or management company

• If you own an apartment or property in a managed estate

• If your business premises is in a managed development (eg shopping centre)

• ACCOUNTS AND REPORT

GOVERNANCE

MEMBERS DECISIONS• LTD can dispense without an AGM

• Majority decisions can be made in writing

• A decision will not be effective for a period of time: 7 days for an Ordinary Resolution 21 days for a special resolution

• For urgent cases a unanimous decision will be essential

BOARD DECISIONS• The default position allows directors

to use written resolutions

• Majority Board decisions in writing are valid if the other director(s) are excluded from voting eg conflict of interest (S161)

• A valid meeting includes video conferencing and e mail attendance

SUMMARY APPROVAL PROCEDURERESTRICTED ACTIVITIES

• the financial assistance for the acquisition of shares (section 82),

• reduction in company capital (section 84), 

• variation of company capital on re-organisations (section 91), 

• prohibition on pre-acquisition profits or losses being treated in holding company’s financial statements as profits available for distribution (section 118),

• prohibition of loans to directors and connected persons (section 239),

• domestic merger (section 464), 

• members voluntary winding up

DECLARATION• the circumstances in which the transaction or arrangement

is to be entered into;

• the nature of the transaction or arrangement; 

• the person or persons to or for whom the transaction or arrangement is to be made;

• the purpose for which the company is entering into the arrangement or transaction; 

• the nature of the benefit which will accrue to the company directly or indirectly from entering into the transaction or arrangement; and

• the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company, having entered into the transaction or arrangement, will be able to pay or discharge its debts and other liabilities in full as they fall due within a 12 month period from the date of entering into the transaction or arrangement.

SUMMARY APPROVAL PROCEDUREFORMAT

• SPECIAL RESOLUTION OF MEMBERS

• DECLARATION BY DIRECTORS

• FILED WITHIN 21 DAYS

• FORMAL REQUIREMENTS MUST BE FOLLOWED

CONSEQUENCES• Civil liability on the application of a

creditor/ liquidator or ODCE

• Personal Liability for directors potentially unlimited

• Any director found to have made the declaration without having reasonable grounds for the opinion

• If company is wound up within 12 months it is presumed the Directors did not have reasonable grounds

CHARGES

NEW PROVISIONS• 2 STEP REGISTRATION PROCEDURE

AVAILABLE

• CLEARER DEFINITION OF PRIORITY OF CHARGES

• WILL ALTER HOW LENDERS DEAL WITH SECURITY

OBSERVATIONS• Consider carefully terms of security

• Priority registration could back fire if Bank A registers priority while you try to negotiate with Bank B

Offences Category

CATEGORY Sentence- Fine Example  Up to Upto  

1 1 10 years €500,000S. 281. Failure to keep or cause to be kept adequate accounting records-

      S-722. Fraudulent Trading

2 2 5 years €50,000Breach of S 102. purchase of own shares by a company

      Breach of S 239- loans to directors etc.

      S 324 Statutory Financial Statements

      S.406 – false statements

      S 716 et al. Offences relating to liquidations

3

CATEGORY SENTENCE FINE EXAMPLE

    S 175(10) failing to hold an AGM

3 6 months Class A fine (€5000)

S335 directors’ report – audit exemption certificate

S 348 documents to accompany annual returns for certain holding companies

4 nil Class A fine (€5000)

S 199 failing to record minutes of AGM and resolutions made

    S 355(5) ODCE

OFFENCES

INSOLVENCY •Increased duties to co operate with liquidators

•Possible to avoid a High Court appearance for restriction of director

•Obligations on liquidator to report suspected Category 1 or Category 2 offences to the Office of the Director of Corporate Enforcement.

Ten Novel Points1. Majority decisions can be made in writing

2. New Provision permits a Company to correct defective financial statements . (S366)

3. Removal of the requirement to apply to the High Court to reduce a Company’s share capital

4. A Company can re-register . An LTD can become a CLG.

5. Audit Exemption: relaxed definitions.

6. A Group of Companies may now qualify for Audit exemption

7. Single Approval Procedure has “cure all” potential

8. Qualify as a Small or Medium Company by 2 out of 3 criteria only.

9. One person Corporation

10.LTD has no legal restriction on activities. The Memorandum of Association is gone