Incorporation of an LTD under the Companies Act 2014
The Companies Act 2014 introduces two new types of private companies limited by shares, to replace the existing single type of private company limited by shares. Therefore, shareholders and directors of all existing private limited companies will have to decide whether to register as a company limited by shares (LTD) or become a designated activity company (DAC). This is a decision that will affect approximately 90% of Irish registered companies that are currently private limited companies.
It is expected that the majority of newly incorporated private companies will chose to be LTDs. This practice note briefly summarises the process of incorporating a LTD under the act.
Method of incorporation
Part 2 of the act deals with the incorporation and registration of companies.
The new LTD will have a one-document constitution in place of the current ‘memorandum and articles of association’. The limit on the number of members a new LTD may have has been increased to 149. Employees and former employees are not counted when determining the total number of members.
The constitution will state the name, that it is a private company limited by shares registered under part 2, any supplemental regulations, the authorised share capital of the company (if any), and the number of shares taken by each subscriber. It must be signed by the subscriber(s) and will be in a form as set out in the first schedule to part 2. The new LTD will have full and unlimited capacity the same as that of a natural person, as it will not have an objects clause and so it will not be subject to the doctrine of ultra vires.
A prescribed form detailing the person who is, or the persons who are, to be the first director or directors of the company, the secretary, the registered office, the place where the central administration of the company will normally be carried on, details of the activity of the company being carried on in the State, and the place in the State where it is being carried on must be prepared as part of the incorporation process. This form will be signed by the directors(s), secretary, and the subscriber(s) and shall include an unsworn declaration, which must be made by one of the directors or the secretary or a solicitor acting on behalf of the company, and is submitted with the constitution to register the company. Where there are no directors resident in the EEA, a bond must be provided with the prescribed form to incorporate the company. Where a director named on the prescribed form is disqualified, a separate statement in a prescribed form must be signed by that director specifying the jurisdiction in which, and date, they became disqualified, together with the period of disqualification.
In addition to the one-document constitution, one of the fundamental changes under the new legislation is to reduce the number of directors required by a company to just one. The act preserves the requirement to have a secretary of a company who cannot also act in the role of sole director. This will do away with the need to have a passive nominee director and increase the level of accountability on the one director. An LTD is also no longer required to state an authorised share capital, but may instead state that its share capital will be divided into shares of a fixed amount specified in the constitution.
Certificate of incorporation
Upon registration of the constitution of an LTD, the registrar will issue a certificate of incorporation. The certificate of incorporation is conclusive evidence that the company is registered.
The last word of the name of the company shall be ‘Limited’, or this can be abbreviated to ‘Ltd’. Trading under a misleading name shall subject any officer of the company who is in default to a category 3 offence.
The provisions applying to the reservation of a name when incorporating a company or changing a company name are preserved. Similarly, the provisions applying to any change of name or alteration in the constitution of a company will still require a special resolution.
Electronic filing agent
Part 2 also deals with the authorisation of an electronic filing agent, which facilitates the electronic signing of documents and the delivery of those documents to the registrar by electronic means. A company may also revoke the authorisation of an electronic filing agent.
Member rights
Finally, the new legislation also provides that, on request, any member is entitled to receive a copy of the constitution from the company. Failure to provide a copy is a category 4 offence.
Conclusion
In summary, the provisions relating to the incorporation of an LTD are broadly similar to those currently in existence for a limited liability company – the main differences being the introduction of the new one-document constitution, the provision that an LTD may (which is not the case for a DAC) only have one director, and may elect not to have an authorised share capital.
Philip Daly is a partner in the corporate department of LK Shields.