The Companies Act 2014 (the “Act”) came into effect in Ireland on 1 June 2015 and has introduced significant reforms to Company Law in Ireland.
Under the Act, an existing private company limited by shares (EPC) has to decide, within a transition period of 18 months from 1 June 2015 (ending on 30 November 2016), whether to opt into the new regime for private companies limited by shares (LTD) or to opt out by 31 August 2016 by becoming a designated activity company (DAC).Alternatively the EPC may become some other type of company that the Act permits.
A DAC is a new type of private company and is the company type under the Act that most closely resembles the existing private company limited by shares.
This limited company type is applicable to those companies who wish to outline and define a specific type of business in their Constitution, rather than have unlimited powers as per the LTD company type. Consequently, the doctrine of ‘Ultra Vires’ still applies. DAC ‘s retain Memorandum & Articles of Association as part of an overall Constitution document.
It is important to note that Part 16 of the Companies Act 2014 governs Designated Activity Companies, however most of parts 1 to 15 of the Act also apply with certain provisions disapplied, modified or supplemented by part 16.
The principal points applicable to this company type making it different from the LTD company are as follows:
- The DAC is a private limited company
- The constitution of a DAC comprises of two separate documents namely a memorandum of association and articles of association (ie it retains a constitution document that contains a Memorandum & Articles of Association)
- The memorandum of association must set out the objects of the DAC and that the DAC has the capacity to do any act or thing stated in the objects
- The name of a DAC must end in “Designated Activity Company” (ie to replace what would currently be “Limited” at the end of the company name) or the Irish language equivalent but it may apply for an exemption
- The DAC must have a minimum of two directors and a person may not be a director of more than 25 companies
- The DAC can have from 1 to 149 members
- The Act allows for the DAC to have debentures admitted to trading and all private companies that were previously permitted to list debentures can continue to do so by converting to a DAC
- A DAC can be Limited Liability with a Share Capital or a Company Limited by Guarantee
- A DAC with one member has the right to dispense with an AGM but if the DAC has two or more members it does not have that right (ie unlike the New Limited Company Type, it cannot dispense with the requirement to hold an AGM unless it only has one shareholder/member)
- The law relating to DACs applies to all existing private companies limited by shares until they re-register as another company type or up to the end of the transition
- A DAC can file and obtain audit exemption and dormant company audit exemption
- Must have an Authorised Share Capital
The companies that will likely avail of the DAC format of company are:
- Companies Incorporated to complete a specific or sole purpose that for legal reasons wish to have the company powers restricted (e.g. a Joint Venture)
- Existing Limited Companies that fall under regulation to trade in specified markets (e.g Financial Regulation) & Companies that have published an offering document and list securities
- Companies that wish to be Limited by Guarantee whilst having a share capital
- Certain Trustee companies and Special Purpose Vehicle (SPV) Companies
- Companies with shareholders that have a strong preference to be incorporated as a DAC