In our last article we spoke about the Introduction of the new Companies Act 2014 which is due to come into effect this June, with a particular focus on the two main types of private companies which will exist under the Act – that is Company Limited by Shares (“LTD” – sometimes referenced as “CLS”) and Designated Activity Company (“DAC”).
This week we will focus on other types of companies that exist under the Act, the codification of Directors’ duties and the changes implemented by the Act in relation to Director’s loans.
Other types of Companies
Below is a summary of the other company types and an outline of the changes that the introduction of the Companies Act 2014 may bring to the company structure as we know it.
|Guarantee Companies (CLGs)||Public Limited Companies (PLCs)||Unlimited Companies (ULC)|
|On commencement of the Act an existing Guarantee Company with no Share Capital will be deemed to be a CLG.||Under the Act the PLC continues to be recognised as a Company type. There are only a few changes to the existing law governing PLCs.||ULCs encompass private unlimited companies with a share capital, public unlimited companies with a share capital and public unlimited companies without a share capital (whose liabilities are guaranteed by its members).|
|This is the most popular type of Company used by management companies, charities, sports clubs and especially property management companies.||PLCs continue to have shares listed on a stock exchange and offered to the public.||They continue to have a memorandum and articles of association.|
|This type of company will continue to have a memorandum and articles of association and objects clause.||PLCs continue to have a memorandum and articles of association and objects clause.||There is the requirement of a name change for ULCs it must end with one of the following:“unlimited company” (or Irish equivalent) or “UC” (unless exempt from doing so by the Minister for Jobs, Enterprise and Innovation).|
|May have just one member (currently required to have a least seven).||They are permitted to have only one member (currently required to have at least seven).||ULCs may have just one member (currently required to have at least two).|
|A name change is required as the name of the CLG must end with one of the following “company limited by guarantee” or “CLG” (unless it is exempt from doing so under the Act.||There is no requirement to change the name of existing PLCs.||No restrictions on ULC that previously re-registered from limited to unlimited subsequently re-registering to limited and vice versa.|
|There is no need for a physical AGM if the CLG has only one member.||Statutory distribution rules no longer apply to ULCs i.e. distributable reserves are no longer required for a distribution.|
|Audit exemption is available (although an objection from any member to such exemption can be made which will then require the CLG to carry out an Audit.||There is no requirement for a physical AGM if the ULC has only one member in this instance written AGMs are permitted.|
In addition to changes to company structures the Act for the first time codifies Directors Common law fiduciary duties. In the past determining the duties and responsibilities of the Directors has not been clear, now the codification of directors duties in the Act gives clarity for directors.
These eight fiduciary duties are set out in the Act as follows:
• Act in good faith;
• Act honestly and responsible;
• Act in accordance with the Company’s constitution and to exercise powers for lawful purposes;
• Not to use the Company property unless approved by the members or the company’s constitution;
• Not to fetter discretion unless permitted by the constitution or unless it is in the company’s interest;
• To avoid conflicts of interest;
• To exercise care, skill and diligence; and
• To have regard for the interests of members as well as employees.
Whilst this gives greater clarity to directors’ duties it is important to note that this list is non-exhaustive and existing duties contained in the Act, other legislation and case law still apply.
The Act also introduces changes to the requirements relating to directors’ loans making it essential for such loans to be formally documented.
As you are no doubt aware Director’s loans under the Companies Act 1990 were illegal when the loan exceeded 10% of the net relevant assets of the Company. The effect of this being that the Company Auditor was required to report the loan to the Director of Corporate Enforcement.
Under the new Companies Act, it will be possible to legalise the Director’s loans using summary approval procedures (cost effective) which are set out in the Act. Being able to legalise the loan to directors should remove the reporting requirement to the ODCE. However it should be borne in mind that under the new Act, the existence of a legal Director’s loan could expose all directors to unlimited personal liability for the debts of the Company.
It is also worth noting that the usual tax provisions apply to loans to Directors. BIK and Income Tax will still have to be paid on these loans.