Once the Companies Bill 2012 (the "Companies Bill") comes into force all existing private companies will have to make a decision whether to convert to:
a company limited by shares (CLS); or a designated activity company (DAC); or another type of company (public limited company, Societas Europaea). The Companies Bill provides for an 18 month transition period, commencing on the commencement date (expected to be 1 June 2015). At the end of that transition period, where an existing private company fails to elect to convert to some other type of company, that company will be deemed to have become a CLS.
Conversion Process - The New Regime
A CLS will operate with a single constitutional document, with no requirement to include an objects clause as, under the Companies Bill, a CLS will have full and unlimited contractual capacity. A CLS will have no requirement to have an authorised share capital.
Furthermore, a CLS can just have one director and one shareholder and may dispense with holding a physical annual general meeting, regardless of the number of shareholders in the company (previously only single member companies could dispense with the need for a physical annual general meeting). Under the Companies Bill, a CLS may not list, or have admitted to trading, any securities.
The Companies Bill sets out a clear framework for the conversion process to a CLS. The most efficient way in which to do this is for the existing private company to pass a special resolution to adopt a new constitution to replace the existing memorandum and articles of association. Until an existing private company converts to a CLS, it will be treated as a DAC during the 18 month transition period.
In the event that the shareholders of an existing private company do not adopt a new constitution, the directors of that company are required to prepare a constitution for the company and deliver a copy to each shareholder and to the Companies Registration Office. This process must be completed before the end of the 18 month transition period.
Unlike a CLS, a DAC must have an objects clause setting out its designated activities and the company's name must end with "designated activity company" or DAC. The constitutional documentation will comprise a two-part single document namely a memorandum and articles in the form prescribed in the Companies Bill. Unlike the CLS, the DAC must have an authorised share capital.
The Companies Bill obliges a DAC...