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What is an LTD and when is re-registration as an LTD appropriate?

Tuesday, 07 April 2015

What are the key differences between an LTD and DAC?

The Companies  Act 2014 (the Act), expected to come into effect on 1 June 2015, requires all existing Irish private companies limited by shares (Private Companies) to re-register as one of two new company types, (i) the new model form of private limited company (LTD) or (ii) a designated activity company (DAC). The LTD is a new simplified form of company with unlimited objects and a simplified corporate governance structure and is the centrepiece of the Act.   The DAC more closely resembles a Private Company in that it has a two-document constitution akin to the current Memorandum and Articles of Association (M&A) and its capacity is limited by a defined set of objects.

What are the key features of an LTD?

  • LTD will not have an objects clause so no legal limit on its capacity to engage in different activities;
  • LTD cannot offer securities (equity or debt) to the public;
  • LTD will have a brief single document "constitution" with most internal regulations incorporated into the Act other than to the extent any optional internal regulation is diapplied in its constitution; 
  • LTD will not need to hold a physical AGM but can instead adopt written procedures;
  • LTD no longer needs a minimum of two directors. One director will suffice (although a different person will still need to act as company secretary where only one director);
  • LTD name will not change and it continues to use the suffix “Limited/Ltd” (or Irish “Teoranta/Teo”); and
  • LTD can have a maximum of 149 members (up from the current 99 for Private Companies).

When will it be appropriate to convert to an LTD?

The Act places the LTD as the new paradigm type of Private Company, and it is expected that, other than certain limited circumstances where conversion to a DAC will be required or appropriate (e.g., to preserve a negotiated position in a bespoke M&A, to restrict corporate capacity of a JV company, where entity holds a banking or insurance licence or lists debt securities on a stock exchange), the new LTD company type will be suitable for the majority of current Private Companies. By re-registering as an LTD, a Private Company can avail of the benefits of the simplified corporate governance regime available to an LTD (and in some cases unavailable to a DAC).  Another benefit is that no change of name will be required.

How to convert to an LTD and timeline for conversion?

There will be an 18 month transition period following commencement of the Act during which all Private Companies will be required to convert to either an LTD or a DAC.  The procedure for conversion to an LTD is straightforward.   A Private Company may become an LTD in one of the following three ways:

  • Special Resolution of 75% of Shareholders adopting a new one document constitution; or
  • Resolution of Directors adopting a new one-document constitution; or
  • Automatic Conversion resulting in deemed one-document constitution.

The recommended approach is conversion by Shareholder Resolution adopting the new model form of simplified one- document constitution as shareholders have greater scope to update the constitution.  A new form constitution adopted by shareholders can both incorporate updated references to the Act and disapply or amend optional provisions of the Act that would otherwise apply by default.   Conversely, when a new constitution is adopted by Directors’ Resolution, only the minimum amendments necessary to comply with Section 19 of the Act are permitted and, as such, a new constitution adopted in this manner may not fully reflect all amendments appropriate for that company. 

Is doing nothing an option?

The law applicable to DACs will apply to all Private Companies which have not converted to LTD or DAC by the end of the 18 month transition period, at which point any such Private Company will automatically convert to an LTD and a simplified Section 19 constitution will be deemed to replace its M&A.  As the deemed constitution may not be appropriate/adequate and as an LTD may not be the appropriate corporate form for the company, to ensure certainty, retain control over conversion and, for LTDs, to avail of the simplified corporate governance provisions as soon as possible, early conversion is recommended.  In this context, company directors should be aware that there are certain statutory remedies under the Act to protect the interests of members and certain secured creditors in respect of conversion.

Next Steps

If you require guidance in determining the most appropriate corporate structure for your company post-commencement of the Act or would like advice in relation to any other aspect of the Act, please contact Gillian O'Shaughnessy, Partner, Corporate Dept on +353 (0)1 691 5286, Eileen O'Connor, Head of Corporate Secretarial on +353 (0)1 691 5300 or your usual contact in the ByrneWallace Corporate Team.

Further Information

For further information on the Companies Act, 2014, please read our related publications below :

We will be continuing to post our series of topical e-bulletins on the ByrneWallace website and LinkedIn page during the lead-in period to commencement of the Act, as well as post-commencement, which will assist companies in navigating the new company law regime and assessing its practical impact.

If you would like to receive our e-bulletins directly, please register at newsletters@byrnewallace.com. Alternatively, please monitor our website  or Follow Us on LinkedIn to read our latest updates.