The Companies Act 2014 came into operation on 1st June 2015. From this date there is an eighteen month transition period during which Existing Private Limited Companies (EPCs) will have to make a decision on which of the new entity types they wish to become.
EPCs can become the new simplified private company limited by shares (LTD) or a Designated Activity Company (DAC). This document lists some of the key differences between the two new company types.
During the transition period, an EPC will be treated as a DAC, even though its company name may end in Limited or LTD, until it re-registers as a DAC or LTD. If it does not re-register during the transition period, it will automatically become a LTD on 1 December 2016, which is when the transition period expires.
Companies wishing to convert to a DAC must initiate the procedure by 31 August 2016.
If you are still not sure whether to convert to LTD or DAC please see our conversion questionnaire.
Should you convert your EPC to DAC or to LTD?
- Does your company perform a designated activity?
- Is there a requirement for an objects clause?
- Does your company have banking covenants restricting its activities?
- Is your company a bank, insurance undertaking or credit institution?
- Have members holding more than 25% served notice requiring conversion to a DAC?
- Does your company have listed debt?
- Has your company been ordered by High Court to become DAC?
If the answer to any of these questions is yes you need to convert to DAC.
We also recommend that directors of EPC’s consult with the company’s shareholders, especially if they have shareholders who are not directors to ascertain what their preference is regarding the two conversion options available to them. It may also be prudent to consult with key creditors such as banks.
If at the end of the transition period, 30 November 2016, conversion has not been completed, the Registrar of Companies will enforce the change and convert the company to the new form LTD. A new certificate of incorporation will then be issued automatically.
Automatic conversion is not a recommended option for the following reasons:
- company may be deemed to have a corporate form and constitution that doesn’t suit their requirements;
- conflicts between existing Memorandum and Articles of Association as lodged in the public records and provisions of Companies Act 2014;
- members will be able to seek remedy in the courts under the legislation (including payment of compensation or the purchase of their shares) if they feel their rights as members have been prejudiced by the company taking no action;
- may impact the company’s dealings with banks, potential investors, enterprise boards and any other third parties; and
- companies wishing to have a ‘single director’ cannot do so until they convert.
