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This practice note deals with how an existing private company should adopt a new constitution that satisfies the requirements of the new . For these purposes, an ‘existing private company’ is defined in s15 of the act as a private company limited by shares, which was incorporated under any former enactment relating to companies and is in existence at the commencement of s15.

Once the act comes into force, all existing private limited companies will be obliged to alter their legal form. They cannot continue in their current form.

What form should our company adopt?

The vast majority of existing private companies will choose to convert to the new form of private company limited by shares, to which parts 1 to 15 of the act apply (which, for convenience, will be referred to as the LTD). Some companies will become, either by choice or due to statutory obligation, a designated activity company, to which part 16 of the act applies (DAC). This practice note will confine itself to the conversion by an existing private company to either a LTD or a DAC.

There are two ways of converting an existing private company to a LTD. The two options are by a constitution adopted by the members (s59) or a constitution prepared and adopted by the directors (s60).

What is the difference between a DAC and a LTD company?

A DAC will have a single-document constitution comprising a memorandum (to include an objects clause) and articles of association. It will be able to list debt securities and will be in the form permitted to operate as a credit institution or an insurance undertaking (subject to Central Bank regulation). A DAC company’s name will end in DAC or ‘designated activity company’ or ‘cuideachta ghníomhaíochta ainmnithe’.

By contrast, an LTD will be governed by a single-document constitution that will differ quite substantially from the old memorandum and articles of association. It does not have an objects clause, as it has full and unlimited capacity to enter transactions and undertake any business or activity. LTD companies cannot list debt securities, nor operate as credit institutions or insurance undertakings.

When do we have to take action?

The act (s15) provides for a transition period of 18 months beginning on the date on which s15 of the act is commenced, with power for the Minister for Jobs, Enterprise and Innovation to extend the period by up to 12 months if any difficulties arise in the operation of the new legislation (s16). Actions relating to DACs are to be taken within 15 months of commencement. The act is expected to have been commenced on 1 June 2015. If commenced when expected, the relevant deadlines for your diary are 1 September 2016 (for DAC) and 1 December 2016 (for LTD).

What happens if our company does nothing?  

1. Transition period – part 16 of the act shall apply to the company as if it were a DAC: from the commencement of part 2 of the act until the end of the transition period, the law on DACs in part 16 of the act will largely apply to existing private companies (s58(1)). This means that the company will, for example, continue to be limited in its powers by its objects clause (s58), be required to have two directors and, where there is more than one shareholder, it must continue to hold an annual general meeting.
2. Post-transition period – company will be deemed LTD: at the end of the transition period, the existing private company will be deemed to have a constitution that comprises the provisions of the company’s existing memorandum and articles of association but modified as required under s61(1) and s61(3). The existing private company will be deemed a LTD (s55).

Does that mean that our company does not have to take any action?

Not quite. There are a number of reasons why each company should be proactive about making the change.

1. Certain companies are not permitted to be LTD companies and must re-register. These companies are:

• Credit institutions and insurance undertakings (s18(2)),
• Companies with listed debt securities (ss56(3) and 68).

2. Shareholders have powers to compel the company to convert to a DAC up to three months before the end of the transition period:

• The members of an existing private company may opt to convert the company to a DAC by passing an ordinary resolution (s56(1)),
• Where a notice in writing to convert to a DAC is served on an existing private company by the holders of more than 25% of the voting rights in the company, the company must re-register as a DAC (s56(2)).

Where the company does not convert to a DAC before the expiry of the transition period, a member of the company holding not less than 15% of the nominal value of the company’s issued share capital or a creditor holding not less than 15% of the company’s debentures (provided such debentures restrict alterations to the objects clauses in the memorandum of association) may apply to the High Court for an order directing that the company shall re-register as a DAC (s57).

Shareholders have powers to compel the company to convert to a DAC up to three months before the end of the transition period:

3. While there is no specific penalty/offence for directors that fail to prepare and register the new constitution, directors have statutory obligations under s60 to prepare a constitution in the prescribed form, deliver a copy to each member, and to deliver the constitution to the Companies Registration Office unless:

• The members have already adopted a constitution (s59(1)),
• The company is required to re-register as a DAC under ss56(2) or 56(3),
• The company is in the process of registering as another type of company (s56(3) and part 20),
• The company is in the process of registering as a DAC pursuant to a resolution passed under s56(1).

Further, it is the duty of each director of a company to ensure that the company complies with the act (s223(1)).

4. The deemed constitution under s55 or a constitution prepared by the directors in the form prescribed by s60(2) is going to be untidy. The cross-references between old Table A provisions and the new Companies Acts are complicated. It is important to note that, if a company’s existing articles of association adopt all or any of the regulations contained in to the Companies Act 1963, those regulations will continue to apply, despite the fact that the 2014 act repeals the 1963 act (and other Companies Acts), save to the extent that they are inconsistent with any mandatory provisions of the 2014 act. Any references in such regulations to any provision of the prior Companies Acts will be read as references to the corresponding provision of the 2014 Act. There will be confusion and a lack of clarity on an ongoing basis as to what provisions do and do not apply. Furthermore, some provisions in the act are mandatory and will ‘overrule’ a Table A provision. On this basis, it is much better for a company’s members to adopt a new constitution under s59.

5. Shareholder oppression. Albeit this type of action is unlikely to take place, it is a possibility under the act that a member may take an action for shareholder oppression due to the directors’ failure to adopt a new constitution. Where any member of a company considers that his or her obligations or rights have been prejudiced by the exercise, non-exercise, or the particular way of exercising a power by the company or the directors of the company, the member may apply to the court for an order under s212 (remedy in case of oppression). Importantly, where the directors have failed to adopt a new constitution under s60, it will be assumed that the directors are acting in a manner oppressive towards the member taking the action or in disregard of his or her interests as a member of the company (s62(1)).

How the members convert to LTD (s59)

Section 59 of the act provides that an existing private company, by special resolution passed in accordance with its existing memorandum and articles and subject to compliance with the provisions of part 16 as to the variation of rights and obligations of members, may, after the commencement of this part, adopt a new constitution in the form provided under s19 of the act.

The required special resolution will either be passed at an extraordinary general meeting of the company or, if authorised by the articles of association, by means of a resolution in writing signed by all the members under s141(8) of the Companies Act 1963.

If the new constitution operates to vary the rights and obligations attached to any class of shares in the company, the holders of 75%, in nominal value, of the issued shares of that class must consent in writing to the variation or the variation must be sanctioned by a special resolution passed at a separate general meeting of the holders of that class.

Section 59 of the act provides that where, before the end of the transition period, a new constitution has been adopted and has been delivered to the Registrar of Companies for registration, the company shall, on its registration, become a private company limited by shares, to which parts 1 to 15 of the act apply.

For further information, please refer to the following documents which are available under precedents on the Business Law Committee webpage:

• Practice note – Adoption of a new constitution by members (document 2.1),
• Draft model constitution (document 2.2),
• Case study – converting existing articles of association to a constitution of an LTD (members) (document 2.3),
• Suggested form resolutions (document 5.1),
• Sample template memorandum and articles of association (for comparison) (document 5.2).

How the directors convert to LTD (s60)

Section 60 of the act provides that the directors shall convert an existing private company to a LTD, provided the company is not in the process of converting or required to convert to another type of company and provided the members have not already adopted a constitution (s60(1)). The directors must prepare a constitution in the form prescribed under s19, deliver a copy to each member, and deliver the constitution to the Companies Registration Office for registration. The company shall, on this registration, become a private company limited by shares, to which parts 1 to 15 of the act apply.

Section 60(3) provides that the constitution registered by the directors under s60 will consist solely of the provisions of its existing articles of association and the provisions of its existing memorandum of association, other than:

• Its objects, or
• Any provisions which provide for, or prohibit, the alteration of all or any of the provisions of its memorandum or articles of association.

For further information, see the precedents under the Business Law Committee webpage:

• Practice note – (document 3.1),
• Case study – constitution prepared by directors converting – tracked copy (document 3.2),
• Case study – constitution prepared by directors converting – clean copy (document 3.3),
• Suggested form resolutions (document 5.1),
• Sample memorandum and articles of association (for comparison) (document 5.2).

How the company converts to a DAC (ss56 and 63)

Section 56 of the act provides for the conversion of an existing private company to a designated activity company.

An existing private company may re-register as a designated activity company by passing an ordinary resolution not later than three months before the expiry of the transition period resolving that the company be so registered (s56(1)).

An existing private company shall re-register as a designated activity company before the expiry of the transition period if, not later than three months before the expiry of that period, a notice in writing requiring it do so is served on it by a member or members holding shares in the company that confer, in aggregate, more than 25% of the total voting rights in the company (s56(2)).

Section 57 of the act provides that if, before the expiry of the transition period, the company has not re-registered as a DAC (whether obliged to do so or not), the holder or holders of not less than 15% in nominal value of the company’s share capital or any class thereof or one or more creditors of the company who hold not less than 15% of the company’s debentures entitling the holders to object to alterations of its objects may apply to the court for an order directing that the company re-registers as a DAC and, unless cause to the contrary is shown, the court must make such an order.

For further information, see the Business Law Committee precedent's page:

• Practice note – constitution on conversion to a DAC (document 4.1),
• Suggested form resolutions (document 5.1).