DAC or LTD? 11 Questions for Existing Private Companies
9 Apr 2018
President Michael D Higgins has signed The Companies Act, 2014 into Irish law. The Act, which came into operation on 1 June 2015, creates two types of new entity:
◆a Private Company Limited by Shares (LTD) and
◆a Designated Activity Company (DAC).
Existing private companies and their shareholders and directors will need to decide which entity type best fits their circumstances. Under the Act, existing private companies have until the end of 2016 to convert to either LTD or DAC.
Briefly, the differences between an LTD and a DAC are:
Private company limited by shares (LTD)
This is a simplified private company model with a one document constitution. Only one director is required however the company must have a separate company secretary. The company may have up to 149 members and members’ liability is limited by shares. There is no need to hold an AGM (in certain circumstances) and the company does not need to have stated objects. Written resolutions can be passed by a majority.
Designated activity company (DAC).
A DAC must have a Memorandum and Articles of Association. A minimum of two directors is required and the DAC must hold an AGM unless it is a single member company. Members liability may be limited by shares or by guarantee. DACs must state their authorised share capital. A DAC is not entitled to audit exemption where it, or one of its subsidiary undertakings, falls within certain categories set out in the Act.
11 Questions for Existing Private Companies
Questions to consider before deciding whether your private company should become an LTD or a DAC, include:
1.Whether you want a sole director company
2.Whether you want an objects clause
3.Whether your existing company is a joint venture
4.Whether your existing company has different share classes with different rights
5.Whether your existing company has specific regulations in its Articles of Association
6.Whether your existing company is governed by a Shareholders’ Agreement
7.Whether your existing company has shareholders who are not directors
8.Whether your existing company shareholders include Enterprise Ireland or a Local Enterprise Office
9.Whether your existing company has BES of EIIS investors
10.Whether your existing company is regulated by the Central Bank or subject to there regulation
11.Whether your existing company has bank funding covenants
Your answers to the 11 questions posed above will help you to work out whether the LTD or DAC entity best suits your existing private company.
Existing private companies limited by guarantee will become DACs under the Act whereas those limited by shares will become LTDs unless they convert to DACs within the specified transition period which closes at the end of 2016. Note that any existing private company which offers securities to the public must reregister as a DAC during the transition period.
To become a DAC, existing private companies must pass an ordinary resolution not less than three months before the end of the transition period. This means the latest date when such a resolution may be passed is 30 September 2016.
If you haven’t already done so, now is the time to focus on the conversion options for your existing private company. For more information or to discuss your specific situation, please contact a member of our team.