The Unlimited Company companiescompanies billact 2014 2012 The Companies Act 2014 (the “Act”) will come into effect on 1 June 2015 and will introduce significant reforms in company law in Ireland. The Act has since then been amended and updated. Although some of the law relating to an unlimited company is unchanged by the Act, there are some notable reforms. Key Features • unless specifically exempted, the name of an unlimited company must end with either “unlimited company” or “cuideachta neamhtheoranta”; • no restriction on a company previously re-registered from limited to unlimited (or vice versa) subsequently reverting to its previous status; • new rules with respect to the capacity of an unlimited company, mirroring those applying with respect to a designated activity company and a public limited company; • unlimited company permitted to be a single-member company; • statutory distribution rules disapplied with respect to an unlimited company (although insolvency rules will remain); • a reserve arising from a reduction of capital of a ULC or a PUC treated as a realised profit; • new provisions facilitating reorganisations, mergers and divisions of companies apply to an unlimited company in the same way as to a private company limited by shares (however, in the case of a merger or division, one of the companies involved must be a private company limited by shares). Companies Act 2014 Preliminary As in the case of a DAC, the articles of association of an unlimited company The Unlimited The Act provides for three types of unlimited company: may contain regulations in relation to Company the company. To the extent that optional (a) a private unlimited company (“ULC”); provisions in the Act are not modified or (continued) excluded, those provisions apply. In the (b) a public unlimited company (with a case of a ULC or a PUC, the articles of an share capital) (“PUC”); and unlimited company may consist solely of a (c) a public unlimited company (without a statement to the effect that the provisions share capital) ( “PULC”). of the Act will apply while in the case of a PULC, the articles must also state Formation the number of members with which the An unlimited company can be formed by company proposes to be registered. The means of registration or re-registration as Act continues the existing memorandum an unlimited company or by means of a and articles of association of an unlimited merger or division. company save to the extent that those provisions are inconsistent with a Change of Status mandatory provision of the Act. Under previous rules, an unlimited Capacity company, which previously had changed its status from limited to unlimited, Rules with respect to the capacity of was restricted from reverting to limited an unlimited company are new and are liability status. The Act removes this consistent with the rules which will apply restriction. Likewise, a limited company, with respect to a DAC and a public limited which has previously changed its status company. from unlimited to limited, may revert to By way of summary: unlimited status without restriction. (a) an unlimited company has the legal Company Name capacity to do any act or thing stated in Irrespective of the type of unlimited the objects set out in its memorandum company, the name of an unlimited of association or any act or thing company must end with either which appears to it to be requisite, “unlimited company” or “cuideachta advantageous or incidental to or to neamhtheoranta”. This is a new facilitate the attainment of those requirement. After registration the words objects; “unlimited company” and “cuideachta (b) an act done by an unlimited company neamhtheoranta" can be abbreviated to will not be invalidated on the ground “uc” and “cn” as the case may be. of lack of capacity by reason of Constitution anything contained in the company’s objects; As in the case of other types of company, the provisions with respect to the (c) a member may bring proceedings to constitution of an unlimited company restrain the doing of an act which reflect changes from the previous law. would be beyond the unlimited company’s capacity but no such Like a designated activity company proceedings will lie in respect of any (“DAC”), the constitution of an unlimited act to be done in fulfilment of a legal company must be in the form of a obligation arising from a previous act memorandum and articles of association. of the company; The Act sets out the prescribed format and those matters to be dealt with in the memorandum of association for each type of unlimited company. 2 | mccann fitzgerald · june 2017 Companies Act 2014 (d) directors must observe any limitation Statutory pre-emption rights continue to on their powers flowing from the apply with respect to both a ULC and a PUC, The Unlimited objects and any action taken by the although the rules with respect to a ULC Company directors which would otherwise be are aligned with those of a private company beyond the company’s capacity may limited by shares (“LTD”). The rules with (continued) only be ratified by the company by respect to a PUC are aligned with those special resolution; applying to a PLC. (e) ratification will not absolve the Subject to certain exceptions, an unlimited directors of any liability unless a company is not permitted to offer securities separate special resolution of the to the public or to apply to have, or have, company for such relief expressly securities admitted to trading or listed provides; on any market. In certain circumstances, however, a PUC or PULC may apply to have (f ) a third party to a transaction with an debentures (or interests in them) admitted unlimited company need not enquire to trading on any market. as to whether an action is permitted by the company’s objects; Maintenance of Capital/Distributions/ (g) an unlimited company may alter its Financial Assistance memorandum of association by special The distribution rules in the Act are resolution; and disapplied with respect to an unlimited company. This represents a significant (h) minority shareholders holding more change to, and removes what many than 15% in nominal value of the commentators regarded as an anomaly in, unlimited company’s share capital the previous law. (or members or holders of debentures above equivalent thresholds) can in The Act provides that a reserve arising from certain circumstances apply to the a reduction of capital of a ULC or a PUC is court to cancel an alteration. The to be treated as a realised profit. Former application must be brought within UK technical guidance on accounting 21 days from the date of the relevant treatment of profits, which is still relied special resolution. upon in Ireland, appears to limit the circumstances in which a credit to reserves Number of Shareholders/Share Capital of an unlimited company (as distinct An unlimited company is permitted to be from a limited company) may be treated a single-member company. The previous as a realised profit. Under these rules, the requirement for a minimum number of nature of the consideration from which the members, being two in the case of a ULC credit is derived will determine whether the and seven in the case of a PUC or PULC, has resulting reserve is regarded as a realised or been removed. This ability to have a single- unrealised profit. member unlimited company means that it The Act also confirms the previously is possible to dispense with arrangements understood position that common law rules whereby one or more shares are held by with respect to the making of distributions other group companies as nominees for out of a company’s assets did not apply to an the principal shareholder. unlimited company. The Act provides that a ULC or PUC can, by The rules concerning the prohibition on special resolution, vary or reduce its share giving of financial assistance for acquisition capital in any way save to the extent that of shares continue to apply with respect its constitution otherwise provides. 3 | companies act 2014 · the unlimited company Companies Act 2014 to an unlimited company. The common Preparation of Financial Statements law insolvency rules will also continue to The Unlimited The provisions of Part 6 of the Act which apply. deal with preparation and formatting of Company financial statements apply to all unlimited Reorganisations, Mergers, Divisions etc (continued) companies. This represents a change The provisions of the Act which facilitate to the previous law. These provisions reorganisations, mergers and divisions of include: companies apply to an unlimited company in the same way as to an LTD. However, • the obligation on every "relevant 1 in the case of a merger, one of the merging company" to establish an audit companies, and, in the case of a division, committee; one of the companies involved in the • the obligation on the directors of certain division, must be an LTD. companies2 to prepare a directors' compliance statement; and Dispensing with Annual General Meetings (“AGMs”) • the requirement on every director of a Unless it is a single-member company, company the financial statements of an unlimited company, like a DAC, may which are being audited to confirm that not dispense with the holding of AGMs all relevant audit information has been (insofar as an unlimited company can provided to the auditors. have a single member and, as such, can dispense with the holding of an AGM, this Audit Exemption represents a change to the previous law). A ULC, but not a PUC or a PULC, can avail of the audit exemption provisions Written Resolutions contained in the Act. This represents a Like a DAC, the provisions of the Act, change from the previous law under which which entitle members to pass unanimous audit exemptions applied to a (private) resolutions in writing, can be disapplied limited company only.