Welcome to the Summer edition of The Company Agenda.
This is a 'Company Agenda Special', in which we focus on the Draft Companies Bill.
The Minister for Jobs, Enterprise and Innovation, Mr Richard Bruton TD recently launched the draft Companies Bill which is published by his Department on its website. The proposed changes will revolutionise Irish company law and provide a state of the art company law code to the users of Irish company law. The heads of Bill were drafted by the Company Law Review Group (CLRG) and its innovations are based on its recommendations. Arthur Cox's Dr Tom Courtney, head of the firm's Company Compliance and Governance Group has been the chairperson of the CLRG and William Johnston, banking partner, has been a member of the CLRG, since its establishment in 2001. In this issue of 'The Company Agenda' Dr Tom Courtney outlines the architecture of the draft Bill and provides an overview of its main innovations. We will revisit particular parts of the Bill in more detail in future issues.
THE DRAFT COMPANIES BILL
The publication of the first of two volumes of the draft Companies Bill is a very significant step in the reform of Irish company law. This first volume is divided into 15 Parts, contains 952 sections of law and is focused solely on the private company limited by shares.
In publishing the first 15 Parts now, the Department of Jobs, Enterprise and Innovation continues to work with the Office of the Attorney General in finalising Volume 2 of the Bill, which will contain another ten Parts which will deal with all other types of company e.g. public companies, guarantee companies, special types of private company, unlimited companies etc. Only when these Parts are finalised will be the Bill be formally published in the Oireachtas.
The New Model Private Company
The new Bill both consolidates and reforms the law relating to Irish private companies. The private company has been the work-horse of commercial life in Ireland since it was first possible to register private companies in 1908, the year the Companies Act 1907 was commenced. Prior to then, it was only possible to form a public company which had to have seven members. In Ireland, the private company has become by far the most common type of corporate entity used by business. Of the 185,044 companies on the register as at 31 December 2009, 87% were private companies limited by shares; less than 1% were public companies, the balance being made up of guarantee companies and unlimited companies.
Ironically, the current Companies Acts view the private company as a peculiar variation of the public company, giving rise to a classic case of the tail wagging the dog. If there is one single recommendation of the CLRG which stands out, it is the very first recommendation of the First Report published on 31 December 2001, that "The private company limited by shares...should be the primary focus of simplification" (at paragraph 3.2.3).
That recommendation was accepted and is reflected in the draft Bill. Whereas there are currently 25 company law enactments (Acts and statutory instruments) applicable to various types of company, the first 15 Parts of the draft Bill will provide an almost exhaustive statement of the law applicable to the private company.
Part 1 – Preliminary and General
This Part is largely devoted to house-keeping and defines terms which are used throughout the Bill. Some of the more important terms which are defined include "subsidiary" and "holding company". One innovation here is the combination of the definition of "subsidiary company" which is defined in the Companies Act 1963 (s 155) for general purposes with the definition of "subsidiary undertaking" which is defined in the European Communities (Companies: Group Accounts) Regulations 1992 (reg 4) for the purposes of group accounts so that there will be a common definition. In this Part "wholly-owned subsidiary" is also defined.
Part 2 – Incorporation and Registration
Part 2 contains the law concerning the formation and registration of companies and it is here that some of the most fundamental changes to the law relating to private companies are to be found.
The new model private company will have a one-document constitution in place of the current memorandum and articles of association and will have "full and unlimited capacity" since it will not have an objects clause. If people wish to have a private company with a memorandum and articles of association and an objects clause they will have to use the alternative form of private company which will be provided for in Volume 2 - the DAC or...