The Companies Bill 2012 will reach second stage in the Dáil next week. Below is an article which first appeared in the Public Affairs Ireland Journal (Issue 88) by Dr Thomas B Courtney, Chairperson of the Company Law Review Group and a partner and Head of Company Compliance & Governance in Arthur Cox.
The Companies Bill 2012 was published on December 21 2012 by the Minister for Enterprise, Jobs and Innovation, Richard Bruton TD. Running to 1429 sections with 17 Schedules, the Bill is the largest in the history of the State. Although the Bill proposes to repeal and consolidate some 30 existing enactments and to make significant reform to the substance of Irish company law, it also structuresits subject matteruniquely. By treating each type of registered company separately, the proposed legislation provides users of each type with a ring-fenced code of applicable laws and which also facilitates the filtering of proposed new provisions across each type of company in the future.
Types of registered company
The registered company will celebrate its 169th anniversary this year, 1844 being the year in which the Joint Stock Companies Act was enacted. That statute, which first established the office of the Registrar of Companies, was the first to permit the incorporation of a company by registration. If the concept of creating a new legal person in the eyes of the law by the coming together of people who follow a registration process was novel in 1844, it has now become common place and, as ofDecember 31 2011, there were 185,181 companies registered with the Registrar of Companies in the Companies Registration Office (CRO).
As a sub-set of bodies corporate, the registered company has flourished in Ireland as elsewhere. Registered companies are the preferred form of business organisation and are a very popular form of social and philanthropical organisation, being commonly utilised by those involved in social, sporting and charitable activities.
The private company
The first companies incorporated by registration were public companies, formed in anticipation of their shares being offered for sale to the public as a means of investment. It was not until the Companies Act 1907 that the registration of a private company was first made possible. The breakdown of the different types of companies registered in the CRO as of December 31 2011 is set out in Table 1.
Composition of register of companies by type of company as of December 31 2011
Private limited companies 159,536 86.15%
Public limited companies 1,799 0.97%
Unlimited companies 4,126 2.23%
Guarantee companies 15,643 8.45%
External companies 4,053 2.19%
From its somewhat inauspicious beginnings, section 37 of the Companies Act 1907, located under the heading Miscellaneous,the private company, limited by shares has become by far the most popular type of registered company formed in Ireland accounting for nearly 90 percent of all companies registered.
The new perspective
It was the treatment of the private company limited by shares under the existing Companies Acts which prompted the Company Law Review Group (CLRG) to recommend a radical refocusing of company law. Even under the Companies Act 1963, the public company was considered to be the model of which the private company was a variation. The CLRG recommended moving the private company limited by shares (LTD) from legislative afterthought to centre stage. It recommended doing this by making the law applicable to the private company the standard, which would be varied in its application to other types of companies. Giving effect to this, the Bill sets out the law applicable to private companies limited by shares in the first 15 Parts of the Bill, so as to improve its accessibility to users of LTDs and to simplify the application of the Companies Bill to LTDs by enabling them to disregard completely Parts 16 to 25 of the proposed legislation.
The reform of company law proposed by the Bill is most obvious in its application to the LTD company, the key features of which are set out in Table 2.
Key features of the private company limited by shares (LTD)
· Members’ liability will be limited by shares, not by guarantee;
· Name must end in “LTD” or Irish equivalent unless licensed otherwise;
· Same contractual capacity as a natural person with no objects clause;
· One-document constitution, no memorandum and articles of association;
· May have just one director but must have a separate company secretary;
· May have up to 149 members, but can have only one;
· Cannot list shares or debt securities, without exception;
· Unless its constitution provides otherwise, it may hold ‘written’ AGMs and pass majority written resolutions.
Other types of company
The segregation of the laws applicable to the private company limited by shares (LTD) from other types of company has required the Bill to provide separate treatment for all other types additionally(see Table 3).
Location in Companies Bill of law applicable to different types of companies
Type of company Part in Bill
Designated activity companies (DACs) 16
Public limited companies (PLCs) 17
Guarantee companies (CLGs) 18
Unlimited companies (UCs) 19
External companies (Branches) 21
Unregistered companies and joint stock companies 22
Investment companies 24
Designated activity companies (DACS) are, essentially, private companies limited by shares or by guarantee and the legal regime applicable to them is set out in Part 16. The architecture of Part 16 – in common with that for most other types of company is to:
· First,apply the law applicable to LTDs, as set out in Parts 1 to 14, to the DAC;
· Secondly, to disapply certain specified provisions contained in those Parts; and
· Thirdly, to supplement the law in those Parts with additional DAC-specific provisions whether by modifying the law applicable to LTDs or by setting out new provisions.
This approach to defining the law applicable to a particular type of company will be described as ‘modified application’.
Unlikethe LTD, a DAC must have an objects clause and a memorandum and articles of association. All existing private companies will be treated as DACs until the end of the proposed 18 months transition period (unless they opt to become LTDs during this period), whereupon unless they opt to become DACs, they will be converted to LTDs. The name of a DAC must signify that it is such by ending in ‘DAC’, or its Irish equivalent, unless licenced otherwise.
The law applicable to public limited companies (PLCs) and their close European relation, the SocietasEuropaea(SE), is contained in Part 17 of the Bill. The key distinguishing feature of the PLC and SE is their inherent ability to list on a stock exchange, and offer for sale to the public, their shares. No other type of company can list or offer shares, although all bar the LTD can list certain types of debt securities. The proposed law relating to PLCs and SEs is set out in Part 17 and is again by way of modified application of Parts 1 to 14.
Among the key features of the PLC are that it can have just one member, it must have two directors, it must have an objects clause and memorandum and articles of association and, in general, it is subject to a more rigorous regime than private companies. PLCs and SEs will be recognisable as such by the requirement that their names end in “PLC”, or its Irish equivalent, or “SE”, respectively.
As can be seen in Table 1, the second most common type of company registered in the CRO is the guarantee company. Companies limited by guarantee (CLGs) do not have a share capital. It is because of the absence of any discernible economic interest, typified by a share, that CLGs are the preferred type of company utilised by charities, sports and social clubs and management companies in residential and retail multi-unit developments. The proposed law relating to CLGs is set out in Part 18 and is again by way of modified application of Parts 1 to 14.
Key features of the CLG are that it will not have a share capital, its members’ liability will be limited by their guarantee, it may have only one member (compared with the current seven) and there is no maximum number, it may list debt securities (just as a DAC can), it must have an objects clause and a memorandum and articles of association and while it may be licenced to do otherwise, its name must end with the words “company limited by guarantee” or “CLG” or the Irish equivalent.
It is proposed that there will be three sub-types of unlimited company or UC: private unlimited companies with a share capital (ULCs), public unlimited companies with a share capital (PUCs) and public unlimited companies guaranteed by their members without a share capital (PULCs). As with all other company types (except the LTD and DAC, although these are variations of the existing private company) all three types of unlimited company are existing types of company. The proposed law relating to UCs is set out in Part 19 and is again by way of modified application of Parts 1 to 14.
All types of unlimited company will be permitted to have just one member but will be required to have at least two directors; unlimited companies will be recognisable from their name which must end in “unlimited company” or “UC” or the Irish equivalent, while the abbreviations ULC, PUC and PULC are used in the Bill all unlimited companies will have the same designation in their name, UC, since there is no material distinction as far as the public are concerned between the various types of unlimited company. UCs must have an objects clause and a memorandum and articles of association.
Other types of company
External companies are non-Irish incorporated companies whose members have limited liability and where such companies establish a branch here, they must register under Part 21. Part 22 deals with unregistered companies and joint stock companies and Part 24 deals with investment companies, which are particular types of PLCs.
The benefits of new structure
The proposed new structure should result in a ‘better fit’ of the law applicable to each type of company. After its enactment, as new regulations or relaxations are proposed, this structure will also facilitate a more thoughtful application of such changes across the different types of company.
The users who will most obviously benefit by this structure are the vast majority who chose LTDs to do business as they need only be concerned with Parts 1 to 15 and since many will be small or medium sized companies with limited resources, it may be thought that this is only fitting. Other users of company law will be in no better or worse a position than they are at present as they negotiate the modified approach.
A Bill of the size and complexity of the Companies Bill has the potential to have a protracted passage through the Houses of the Oireachtas. While there are many reforms to company law proposed in the Bill, a great deal of the innovations involve consolidation and restructuring which, one would expect, should not require the same level of scrutiny as substantive proposals. It is thought to be significant that the Bill implements the recommendations of the CLRG which consists of the social partners, users, regulators and policy makers of company law. Virtually all of the proposals were recommended unanimously and in respect of the few where there was dissent, the CLRG’s recommendation represents the carefully considered view of where the appropriate balance lies.