The Private Company No Longer A Legislative Afterthought But The New Model For Irish Company Law

Author:Ms Yvonne Keating
Profession:Dillon Eustace
  1. Introduction

    The draft Companies Consolidation and Reform Bill 2007

    ("the Bill") presented by the Review Group (CLRG)

    represents a major overhaul of Irish Company Law and is an

    attempt to consolidate the thirteen Companies Acts and various

    Statutory Instruments into a single and more simplified piece

    of legislation. The new draft Bill is the result of the first

    comprehensive review of Irish Company Law since the report of

    the Company Law Review Committee (1958) and when enacted will

    radically reform the substance and structure of Company


    The Heads of the Bill are currently being discussed at

    Parliamentary Counsel and the following important changes and

    major areas of reform are proposed:

    the private company limited by shares becoming the model

    company (rather than the public company, as is currently the


    the abolition of the doctrine of "ultra


    the codification of directors' duties

    new registration and priority of charges rules

    a requirement for liquidators to have appropriate


    In this Article, the significant provisions will be

    discussed and some of the major implications for Irish

    companies following enactment of the Bill. An analysis of

    certain comparable provisions in UK Companies Act, 2006 which

    replaces the Companies Act, 1985 will also be highlighted.

  2. Background and Structure of the Bill

    Current Company Law was mainly written with the large

    company in mind. However over 90% of the companies in the State

    are small to medium sized private companies limited by shares.

    This is in contrast to public limited companies

    ("PLCs") which are few in number and account for

    approximately 0.7. % of companies registered with the Companies

    Registration Office ("CRO"). Historically, there was

    no distinction between the law applicable to private and public

    companies and this has resulted in smaller companies being

    obliged to comply with a significant Company Law code, a

    considerable amount of which may have no application to their


    In keeping with the modernisation and simplification agenda

    of Company Law the Heads of the Bill propose to divide the law

    pertaining to companies into two separate pillars Pillar A and

    Pillar B. The former is exclusively concerned with the private

    company limited by shares and the latter will govern other

    corporate entities including PLCs and Designated Activity

    Companies ("DACs") amongst other corporate types.

    The law applicable to private companies limited by shares

    will be ring fenced from the law applicable to all other types

    of company with the "private company" to be

    established as the model type company in Irish Company Law.

  3. Pillar A The Private Company

    Part A2: Incorporation, Constitutional Documentation and the

    abolition of the Doctrine of 'Ultra Vires'

    The private company incorporation process will be simplified

    and the current requirement for a memorandum and articles of

    association will be replaced by a single document

    'constitution'. This document will govern the

    company's relations with outsiders and insiders and will in

    effect define the company.

    The memorandum of association of a private company currently

    contains the objects clause which outlines the parameters of

    permitted corporate activity and typically contains a lengthy

    list of core and ancillary objects. There is an obligation on

    parties dealing with a company to verify whether or not a

    transaction is within the corporate capacity of a company.

    Contracts entered into by companies that are ""ultra

    vires" (or beyond their powers) may be unenforceable to

    the obvious detriment of a party seeking to rely on it.

    The Bill proposes a radical change in this area in line with

    other jurisdictions where the doctrine will have no application

    to the private company and it will be given the contractual

    capacity of a natural person. Part A2 Head 20 (1) states that

    "A company shall have, whether acting inside or outside of

    the State the full and unlimited capacity to carry on and

    undertake any business or activity, do any act or enter into

    any transaction". The abolition of the 'ultra

    vires' principle will allow for...

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