Unless they are credit institutions, insurance companies or have listed debt securities, private limited companies will have a choice between two new forms of private limited company: the standard form private limited company (known as an LTD) and the designated activity company (known as a DAC).
1. What are the new forms of private limited companies?
LTD
The LTD is the new model form of private limited company. It is a simplified form of company which may have only one director, has a one document constitution (i.e. will no longer have a memorandum and articles of association) and may dispense with holding AGMs.
DAC
The DAC is closer in form to the existing private limited company. It must have two directors and will continue to have a memorandum and articles of association.
2. What factors should be considered when choosing which company form to register as?
The majority of existing companies will chose to be LTDs. However, if a company has several shareholders, those shareholders may prefer to re-register the company because a DAC, as noted, must have at least two directors and has its activities restricted to what is permitted by its objects clause, thereby giving the shareholders more control over its activity.
3. How much time do I have to convert company form?
There will be a transition period from the commencement of the Act to allow companies to convert – this will be fifteen months for DACs and eighteen months for LTDs.
During this transition period all companies will be treated as DACs, unless they have re-registered as a LTD. There are no CRO filing fees for re-registrations during the Transition Period.
4. How do I convert to LTD?
The most straightforward way to convert to a LTD during the Transition Period is to prepare a new constitution in the form required by the Act and to adopt this by passing a special resolution. The new constitution is then filed in the CRO.
5. How do I convert to DAC?
A company that decides to convert to a DAC must also adopt a new form of constitution in the form set out in the Act, however this is done by ordinary resolution. Careful consideration of the company’s existing memorandum and articles of association will be needed, to ensure that they are replicated as necessary in the new constitution. The new constitution is filed in the CRO. Conversion to a DAC also involves a change of name of the company from e.g. XYZ Ltd to XYZ Designated Activity Company (DAC). So the company’s stationery, seal, website, etc. will need to be amended.
6. What happens after the transition period?
At the end of the 18 month transition period, all companies who have not converted to DACs will be deemed to be LTDs. The company will be deemed to have a constitution comprising its existing memorandum and articles of association excluding the objects clause and any clause restricting the amendment of the memorandum and articles of association. All of the references in the memorandum and articles to the old legislation (and to Table A) will remain, leading to confusion and uncertainty. It will of course be possible to adopt a new constitution after the Transition Period, or to convert to a DAC, however if the company is deemed to be a LTD, it may have a constitution and a form that is not appropriate to the Company’s requirements or those of its shareholders and/or creditors.
7. What should I do now?
Each company should review its requirements in light of the Act and make a decision to re-register as either a LTD or a DAC, as well as prepare and adopt a new constitution.
About the author
Pauline Louth
About Pauline
Pauline is a partner heading up our knowledge management team. Pauline and her team ensure our lawyers and clients are up to date on legal developments and trends. Her focus is on ensuring our collective experience and knowledge is shared across the firm and with our clients.