The New Companies Act 2014 – How Will It Affect Your Company?

Yesterday, June 1, the new Companies Act 2014 finally came into effect. It now applies to all existing and future limited companies.

As a company director, you may be wondering how the Act will affect you and your company.

Under the new Act, you have a choice of legal formats for your company, for a transition period of 18 months, up to 30 November 2016.

In the vast majority of cases, your choice is simple. Your company can convert under the new Act to a Private Company Limited by Shares (“LTD”), or convert to the new format Designated Activity Company (“DAC”).

The LTD is a simplified new company format which aims to reduce the administrative burden on private companies.

LTD companies:
• can now operate with just one director,
• can adopt a single-document constitution in place of the existing and rather legalistic Memorandum & Articles of Association, and
• don’t need to hold AGM’s.

The DAC option is more complex, and is intended for
• charities,
• management companies,
• companies limited by guarantee, and
• other companies which operate for a clearly-defined specific purpose.

Each DAC must have at least two directors and must hold an annual AGM.

There are set procedures for registering your company as a LTD, or as a DAC. These effectively involve adopting a new company constitution which must be filed with the Companies Office together with a special form.

If you do nothing, your company will automatically become an LTD once the 18-month transition period expires. Its Memorandum & Articles of Association will remain unchanged but will form part of an automatic company constitution to comply with the new Act.

Where a company becomes a LTD by default, it may end up being saddled with an outdated and unnecessarily complicated constitution.

This may cause difficulties and added expense (ie more legal fees) when dealing with banks and creditors in the future.

My advice? Face up to this challenge within the next 18 months, and convert your company to the appropriate format before it’s too late.