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The Companies Act 2014 is an important and substantial piece of legislation and something that absolutely everybody involved in the ownership or running of a Company needs to know about, and familiarise themselves with. It imposes new obligations on Directors and Secretaries, and makes a number of significant changes to Company Law. In short, it’s a big deal, and you can’t bury your head in the sand and hope it will go away. It won’t, and if you don’t make decisions on it relevant to your Company, the CRO will decide for you and you could end up with the wrong company type and could also find yourself in breach of the Act before you even begin.
That being said, and with the best will in the world, the Act is also 1,168 pages long, incorporating 1,448 sections and 17 schedules, including a total of 473,269 words. If you were to read it start to finish in one sitting at a reading speed of 300 words per minute (the average reading speed of the average adult) it would take you 1,577.56 minutes, or 26.29 hours. And you don’t have time for that. In fact, anybody who does have time for that needs to get out more.
So here’s the very basics you need to know about the Companies Act 2014:
The Act came into Force on 1 June 2015. It’s the law. Now.
All Limited Companies that are currently registered with the CRO as companies that are ‘Private Limited By shares’ will have to covert either to a Limited Company (I know, why do you need to something you already are, right? We’ll get to that) or a Designated Activity Company. You have until 31 August 2016 to decide which type of Company your business is going to convert into and become. If you don’t elect one, then at the end of the transition period on 30 November 2016, your company will automatically be deemed to be a LTD company.
Right now, and until you decide or the transition period is up, your company is treated as a DAC and is subject to the law set out in part 16 of the Act.
So, LTD or DAC, that is the (first of many) Question. Firstly despite their names, both Company types are “limited” in the traditional sense. The majority of SMEs will probably choose the former LTD company type, as it’s simpler and more flexible. However the decision the needs careful thought with regards to the company’s current position and the plans into the future. It may be that the introduction of this legislation could be the catalyst for your business taking the next expansion step and deciding that the DAC is the proper model for the future:
In brief, the key differences are as follows:
||Designated Activity Company
|Only requires 1 Director
||Has to have at least 2 directors
|There is no ‘objects’ clause in the constitutional documents, meaning the company is not restricted in the business it can carry out
||The constitutional documents are similar to the existing memoranda and articles of association, and the Company’s capacity is limited to the objects clause therein
While only 1 Director is required, the Company must have a separate Company Secretary
|The Company Secretary can be one of the Directors
|Don’t have to hold an AGM
||Must have an AGM (unless it’s a single member company)
|Doesn’t need an authorised Share Capital
Must have an authorised Share Capital
|Can act by way of Majority or Unanimous Written Resolution
||Whether it can act by written resolution depends on the Company’s Constitution
|Cannot list debts or securities
Can list debts/securities (subject to certain limitations)
The Practicalities here are also other types of companies as before including Public Limited Companies, Companies Limited by Guarantee but without a Share Capital and Unlimited Companies, as well as Limited Partnerships. If you think your Company is or should be one of those types of Company we can discuss this with you also.
If you’re going to re-register as a DAC, you’ll have to amend your existing Memo and Arts. So get out the tippex (we’re kidding) and change all references to ‘limited’ to ‘designated activity company’. You’ll also have to make some other changes to those documents, and you will have to change all your company letterheads and merchandise to state DAC rather than LTD
If you’re going to re-register as a LTD you’ll need to prepare a new form constitutional document. If you don’t do this during the transitional period, the CRO will deem your company to be a LTD with a deemed new form constitution in place of your existing Memo and Arts, which will be (effectively) your current memo and arts minus the objects clause, and any other clauses that restricts the company’s ability to alter its constitutional documents.
Now, before you rush off to make this decision, a little bit of housekeeping:
If you want to convert to a LTD company, this has to be by special resolution of 75% of the members of the Company or by a resolution of over 50% of the directors of the Company.
If you want to convert to a DAC this can be done by ordinary resolution. It can also be force on the company by a shareholder holding more than 25% of the total voting rights in the company or it may be required because, for example, company offers securities to the public.
The Other Stuff
Apart from the first basic question over what Company type to convert into or re-register as, there is a huge amount of other changes which have a significant bearing on the running and management of a Company, of which you should be aware.
Directors Duties have now been codified and set out specifically in section 228 of the Act. Bad news kids, you have to be over 18 for a start. The obligations include an obligation to Act in good faith in accordance with the Company’s constitution, in an honest and responsible way. One obligation which has received particular attention is the obligation on Directors not to use the company’s property, information or opportunities for the director’s own, or anyone else’s benefit. The scope of this is unclear, so, for example, would this prohibit a Director using company IT such as laptops or mobile phones for personal purposes (perhaps as well as business purposes) . This remains to be tested and fleshed out.
Secretaries now have to be suitably qualified (though that this means in practice is not particularly clear) and there is an onus on directors to ensure that the person appointed is so qualified. As mentioned above, in a new LTD company, if there is only 1 Director, that person cannot also be the secretary. Happily (if you’re a Company secretary at least) there is no longer an obligation on you to ensure compliance with Company law, which requirement now sits solely with the Directors
There are further changes in relation to the rules on directors making and receiving loans to and from the Company. Failure to comply with the rules will lead to any such loan being deemed to be unsecured.
Depending on the size of your company (in the sense of how much money it turns over), Directors may be required to complete a compliance statement in addition to the traditional Director’s report filed with the Annual Return. If applicable this compliance statement will have to acknowledge that the directors are responsible making sure that the Company has complied with its statutory obligations.
If you’re a director, secretary or shareholder in the company, you need to consider how this vast new legislation impacts on your own business, or your rights, duties and obligations as an officer of any company in which you hold such a role.
If you have any queries at all, you can contact a member of Rennick Solicitors Corporate Team. We’ve read the act. All of it. Twice.