Governance and Compliance Update: Companies Act 2014 – A Bit to Do
19 August 2016
Have you taken steps to re-register your existing private company limited by shares as a new form private company limited by shares or as a designated activity company in accordance with the requirements of the Companies Act 2014? With just over a week to go before the expiry of the deadline (31 August 2016) for existing private companies limited by shares to re-register as designated activity companies, we remind you of what you need to do.
Only 9% of private companies limited by shares that existed at the time of commencement of the Act have re-registered in accordance with the Act. 8.8% of these have elected to become new form private companies limited by shares (“LTDs”) with the remainder having re-registered as Designated Activity Companies (“DACs”).
A reminder of the differences between the two company types and the considerations in respect of which one to choose can be found here.
Reminder of deadlines
To become a DAC:
Companies wishing to re-register as DACs need to take action now. The prescribed process includes the requirement of the shareholders of those companies to pass an ordinary resolution to re-register by 31 August 2016. Certain documents need to be filed in the CRO but this does not need to be done before 31 August 2016.
Therefore, the important action is to pass the ordinary resolution before 31 August 2016.
To become a LTD:
Companies electing to become LTDs need to take action as soon as possible. The prescribed process requires:
- the shareholders of those companies to pass a special resolution to adopt a new Constitution; or
- the directors of those companies to prepare a new Constitution with the minimum changes required to make it conform with the prescribed contents set out in the Act; and
- for the new Constitution (together with other documents) to be filed in the CRO before the transition period expires on 30 November 2016.
A company does not become a LTD until the new Constitution is registered by the CRO. The CRO has recommended that companies wishing to become LTDs must adopt a new Constitution as soon as possible as it cannot guarantee that applications received at the very end of the transition period will be processed before 30 November 2016.
Therefore, the important action is for either the shareholders or directors to take the necessary steps now and to file the requisite documents in the CRO well in advance of 30 November 2016.
A reminder of the re-registration processes can be found here.
Consequences of not taking action
A company that does nothing will become a LTD from 1 December 2016. If a company is automatically re-registered as a LTD:
- the company will be left operating with its current articles of association which may not be suitable and which will contain provisions that are difficult to interpret or that conflict with the Act;
- the directors will be in default of a statutory duty. While there is no offence specified for breach of this duty, the directors may still be liable to adverse comment, such as in a liquidation.
Shareholders can seek redress through the courts where they consider their rights to have been prejudiced by the directors’ failure to act.
For further information, please contact a member of the Corporate Governance & Compliance team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.