The new Companies Act came into effect on June 1, 2015

Are you running your farm through a company?

Did you know that there is a new Companies Act?

Do you know what you need to do?

Do you know how it affects your company and business?

The new Companies Act came into effect on June 1, 2015. Company law, believe it or not, has been made easier.

The law in relation to companies remains substantially the same, but there are some significant changes.

There is currently a transition period up until August 31, 2016.

Believe it or not, the legislation has been designed to make it easier to operate a business in Ireland. It is not often new legislation is welcomed by business owners.

Conversion

Existing companies limited by shares did not automatically become limited companies on June 1, 2015.

They operate under DAC (Designated Activity Company) legislation for the duration of the transition period until November 30, 2016, until automatically converted to a limited company on that date.

All existing private companies currently registered as a private company limited by shares can choose to convert to one of the two new company types from now until August 31, 2016.

The company may pass a special resolution to amend the company’s memorandum and articles of association, and submit these documents together with an appropriate form.

Once the application is in process, a new certificate of incorporation will be issued by the Registrar of Companies.

However, if you wish to convert to a DAC rather than a limited company, you need to apply by August 31, 2016; otherwise the company will automatically be converted to a limited company on November 30, 2016.

Most farming companies are either owned individually by the farmer or with his or her spouse.

It would appear that the most suitable company type to operate the farming enterprise would be the limited model.

This will not automatically occur unless the company applies to convert.

After November 30, 2016, it will automatically convert to a limited company.

It would be beneficial for farmers to convert to this model now rather than wait until November 30, 2016.

The new Act provides for a new simplified type of private limited company with a one-page constitution, one director requirement, and reduced administrative compliance obligations.

The Companies Act is good for business.

The old laws were primarily based on regulating large PLCs. The new Act focuses on regulating small private companies.

The benefit of the limited model rather than the DAC is that a limited model does not require the company to hold AGMs, which most farming companies are obliged to do.

In general, directors are required to ensure that every company holds an annual general meeting, the only exception being a single-member private limited company, where the sole member may dispense of the holding of an AGM.

The directors are required to present the financial statements at the AGM together with the director’s report.

Further, the limited company may have just one director, and given that the farming company is often operated by the farmer solely, it would be advisable for him or her to be the sole director, rather than bring in another person to act as a second director, which might have no involvement or interest in the farm.

You are not obliged to change the company type and convert.

However, assuming the farming company is a private company limited by shares, it has now automatically converted to a DAC, unless you have opted to convert.

Again, if no action is taken until November 30, 2016, the option of sole director cannot be availed of, as it is confined to the limited model, and the company will have automatically been converted to the DAC model, which requires a minimum of two directors.

Another benefit on converting to the limited model is that is not required to have “objects” of a company.

Currently, farming companies have a memorandum and articles of association, which set out what the company can and cannot do.

Converting to the limited company will give the farming company greater freedom in what it is allowed to do, as the company would not be confined to work they are specifically allowed to do in the objects clause of the memorandum of association.

Do not adopt a ‘wait and see’ approach for too long.

Companies need to become familiar with this new Act, and the consequences for their business, so that they can take advantage of the opportunities it offers in time.