In consolidating the seventeen existing companies acts and implementing much needed reforms the legislation is expected to cut a lot of red tape. This should be a welcome reprieve particularly for the many SMEs that continue to struggle in the wake of the financial crisis.
Overall the legislation is expected to make running a business in Ireland much more efficient. The administrative burden imposed by previous legislation should be somewhat reduced and legal requirements expected of business owners will also be reined in.
The core provision of the act is the designation of a number of distinct company types. After the implementation of the bill companies will have an 18 month grace period to choose what category of business they fit into.
Private companies will chose between being a private company limited by shares (LTD) or a designated activity company (DAC).
The vast majority of SMEs are likely to fall into the LTD category but Designated Activity Company may be more pertinent for businesses such as those in the financial sector.
A key provision of the act is that LTD companies will no longer require a second director. In the case where LTD companies decide to have only one director they will be required to have a separate company secretary.
The new companies act also codifies the duties of directors providing much greater clarity and certainty in this area. Previously many of these duties were scattered across more than a century and a half of case law.
Currently private companies are required to have a separate memorandum and articles of association. Under the new act companies will be able to combine these into a single constitutional document.
The requirement for a physical AGM has also been removed for limited companies. Companies will now be able to adopt written procedures instead. Shareholders will simply have to sign a written resolution that acknowledges they have received the appropriate financial statements. The resolution should also cover any other issues that would normally be dealt with at an AGM.
A significant part of the act is given over to accounting, auditing and preparation of financial statements. In a single comprehensive section the act clarifies requirements for these aspects of operating a business. This section also includes a clear and concise definition of the financial year end which will likely please many accountants.
Another provision of the act that accountants are likely to welcome is the ability for companies to file their returns online in full, making the process even more efficient.
Further provisions include giving directors greater corporate authority making it easier to engage in contracts with third parties as well as enabling mergers and divisions to be carried out privately without the need for court approval.
Some companies might find some short term challenges in adapting to the new measures but the 18 month grace period should be more than enough for most companies to adjust. Ultimately the new Act should provide the Irish business sector the modernisation and increased efficiency it has long sought.