Insights

To Convert Or Not To Convert: There Is No Question

The Companies Act 2014 ("the Act") came into effect on 1 June 2015.  One of the requirements of the Act is that every Irish company must convert to a company type which is recognised by the Act.  The Act prescribed a transition period in which the conversion process could be completed.  The transition period expires on 30 November 2016 for all company types except companies converting to a DAC which must be done by 30 August 2016.  With the transition period drawing to a close this is the time for Directors to prepare for the implications of conversion.

What is "conversion", how does a company convert and why should I care?

  1. "Conversion" may be described as the process by which an existing Irish company replaces its memorandum and articles of association with a company constitution the standard form of which is a much shorter document.
  2. A company can convert by drafting a constitution, adopting the constitution by passing a members’ special resolution and registering the constitution in the CRO.  Once the CRO registers the constitution a new certificate of incorporation will be issued to the company.
  3. The Act imposes a duty on Directors to ensure that each company completes the conversion process before the expiry of the transition period.

How will this affect my company?

Private Companies Limited by Shares – there is two options, the “Limited” (LTD) company or the Designated Activity Company (DAC).  They are compared below:-

LTD

DAC

Is not permitted to engage in certain regulated activities such as acting as a bank or insurance activities.

Must designate its activity.

May dispense with holding an AGM.

Must have an AGM unless single member.

Not required to have an objects clause.

Must have an objects clause setting out designated activity.

Not required to have an authorised share capital.

Must have an authorised share capital.

May have a single Director (provided there is a separate company secretary).

Must have at least two Directors.

No change of name required.

 

Must use the suffix “Designated Activity Company” or “DAC”

 

What happens if I do nothing?

  1. The transition period ends on 30 November 2016.  On 1 December 2016 any private company limited by shares which has not converted will automatically become an LTD.  Other company types, such as CLGs and Unlimited Companies will automatically be converted and must use the new company names (i.e. Charity / Management Company Limited will become Charity / Management Company Company Limited by Guarantee).
  2. On 1 December 2016 the CRO will issue new digital certificates of incorporation by email to all Irish companies (both converted and unconverted).  Directors should ensure that the CRO has a valid email address for the company so the certificate of incorporation is not sent to the wrong email address.
  3. Any company which fails to convert before the expiry of the transition period will be deemed to have a constitution.  The company will not be able to rely on its memorandum and articles if any provision or regulation conflicts with the Act.

What are the implications of having a new company name?

  1. There are a number of issues which Directors must consider in circumstances where the company name is about to change.  It is advisable to try and identify the relevant issues and to put plans in place to avoid any difficulties before the company name changes (whether voluntarily by converting or automatically on 1 December 2016).

    1.1.  Websites, Stationary & Signage

    The Act provides that the correct company name must be displayed on all websites, headed paper, signage and invoices issued by a company.  Directors must ensure that they are prepared for a change in company name.

    1.2.  Aesthetics

    If “Management Company Limited” converts to “Management Company Company Limited by Guarantee” the company is left with an unwieldly name.  In order to avoid such a situation, the company may want to change the name before the conversion process (eg. the original name is Management Company Limited; the name should then be changed to Management Limited; and then the company may be converted to Management Company Limited by Guarantee).

    1.3.  Contracts & Other Legal Instruments

    Consider whether any contracts, leases, title deeds, charges and other legal documents need to be re-executed or re-registered on a change of company name.  Certain counterparties, charge holders and other third parties may also need to be informed of a change in company name.

The Companies Act 2014 is a progressive and innovative piece of legislation which will modernise and streamline Irish business, however if a company does not take a proactive approach to conversion within the transition period then there is a risk of being left in limbo.

Once the transition period expires then conversion will no longer be an option.  Re-Registration as a different form of company is possible but is a more time-consuming and expensive process than conversion.  There is a strong possibility that banks, insurance companies and other institutions will refuse to accept a memorandum and articles of association in lieu of company constitutions once the transition period expires.

Now is the time to act and avail of the benefits of converting early!

For further information regarding company conversion and associated implications please contact Paige Keating at cosec@reddycharlton.ie.


Keywords: Publication, Company Secretarial, Paige Keating

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