Charity Law Update - February 2015 - The Companies Act 2014

The Companies Act 2014 (the “Act”) is the most significant change in Irish corporate law in two generations.  Given the large number of Irish charities that are companies limited by guarantee without a share capital, the boards of those charities will need to become conversant with the main issues arising.

Set out below is a summary of the main changes and the issues that charity trustees will need to be aware of:

• The Act is confined to company law and does not address matters in relation to the taxation or residence of companies or their directors, or the administration and regulation of charities.
• The indicative date of commencement of the Act is 1 June 2015, which will be followed by an 18 month transition period to allow directors to ensure compliance with the new legislation.
• Companies limited by guarantee without a share capital (“CLGs”) are likely to continue to be the legal form of choice for charities.
• All CLGs will now be governed by a ‘constitution’, although this will comprise of a memorandum of association and articles of association, similar to the existing position.
• To all intents and purposes a CLG’s constitution will look like a memorandum and articles of association save that it will be one document and the word “constitution” will appear before the start of the memorandum of association.
• The memorandum of association of a CLG will contain much of the same information as that an existing CLG.  In particular, it must contain an objects clause.
• Under the Act, CLGs can now have one single member (in contrast to the previous requirement to have seven members) although the Revenue Commissioners are unlikely to grant charitable tax exemption to charitable companies having one single member.
• CLGs must, under the Act, have at least two directors.  However, the Revenue Commissioners are likely to continue to apply their condition, for charitable tax exemption to be granted, that a charity have at least three independent directors.
• Unless the constitutional documentation provides otherwise, the directors shall retire by rotation.
• CLGs can now avail of audit exemption.  However, this will not change the condition imposed by the Revenue Commissioners, in the context of granting charitable tax exemption, that the accounts of charities must be audited where the annual income exceeds €100,000.  This is a lacuna in the legislation governing charitable companies, given that the new audit requirements of charities under the Charities Act 2009 do not apply to companies.
• While the Act sets out a series of statutory default provisions for the constitutions of all companies, many CLGs are likely to disapply the standard provisions and write their bespoke articles long form, as is the current practice for many charities.
• The corporate name of a CLG must end in “Company Limited by Guarantee” or “CLG”, although many charities will have liberty to dispense with having “Limited” in their name, and that this dispensation may be carried forward.
• Similarly to the other types of company under the Act, CLGs now have a duty to ensure that the person appointed company secretary “has the skills or resources necessary to discharge his or her statutory or other duties”. 
• There are no changes to the obligations of multi-member CLGs to hold an AGM.
• It would appear that external companies granted charitable tax exemption (DCHY numbers) whose presence constitutes a ‘place of business’ in Ireland, but not a branch, will no longer be required to file accounts in the Companies Registration Office.  It remains to be seen how the Companies Registration Office will deal with this aspect.

The Companies Act 2014 is a state of the art of the law applicable to companies, from their formation, administration and management to their winding up and dissolution, incorporating the rights and duties of their officers, members and creditors.  From the perspective of directors of charitable companies limited by guarantee, the actions that will need to be taken during the transition period of 18 months from the commencement date should be quite minimal, and it is expected that existing charitable companies limited by guarantee will continue their existence within that statutory form.