DACs I

Overview

A Designated Activity Company is a new type of corporate entity which is provided for by the Companies Act, 2014.  The default position under that Act is that companies are private limited companies (LTDs) with unrestricted objects.  The principal distinguishing characteristic of a Designated Activity Company is that it has an objects clause.

A Designated Activity Company is very similar to a private limited company under the pre-2014 Companies Acts.  Existing private limited companies continued to operate as if they are Designated Activity Companies until the end of the transition period on 1st December 2016 or until converted into an LTD before that date.

Designated Activity Companies are appropriate where it is necessary that there be limited objects.  This may arise, for example, in the case of joint ventures and special purpose vehicles.  Credit institutions and insurance undertakings may not be limited companies, and accordingly, they must be DACs if they are not PLCs.

The name of a Designated Activity Company must end with the words, “Designated Activity Company”, “DAC” or the Irish language equivalents. A Designated Activity Company may be limited by guarantee or limited by shares.


Differences to LTDs

Almost all provisions of the Companies Act applicable to LTDs / private limited companies, also apply to Designated Activity Companies. Certain provisions which apply generally to LTDs do not apply to Designated Activity Companies.

In several respects, a different regime applies to DACs. Several features which are optional or are not available to LTDs, are optional or are mandatory for DACs.

DACs are required to have an authorised share capital. Their constitution has two constituent parts,  a Memorandum and Articles of Association. They must have at least two directors.

DACs may list debt securities, a useful option not available to LTDs.  A DAC, other than a single member company, may not dispense with holding annual general meetings.

The ultra vires principle continues to apply to DACs but has been modified.  A Designated Activity Company must have an objects clause. There are enhanced protections for outsiders in relation to the validity of transactions entered in breach of the objects clause.

Members may take action to restrain breaches of the objects clause. Directors may be liable for breach of their duties in entering transactions outside the DAC’s powers.


Formation of DAC

A Designated Activity Company may be formed for any lawful purpose by any person or persons subscribing their names to the constitution and complying with the legislation in relation to registration.

If the memorandum of the DAC contains a statement that it is a company limited by shares, then it is so limited by shares.  If it contains a statement that it is limited by guarantee, it shall have the status of a private company limited by guarantee and having a share capital.

A Designated Activity Company may be formed by re-registration of

  • a pre-existing company limited by shares as a DAC;
  • re-registration as a DAC of a body corporate;
  • the merger of two or more companies; or
  • division of two or more companies.

The liability of a DAC is limited, in the case of a DAC limited by shares, to the amount, if any, unpaid on those shares, registered in the member’s name at that time.  In the case of a DAC limited by guarantee, it is limited to the amount undertaken to be contributed, in the event of the company being wound up, and the amount, if any, unpaid on the shares registered in the person’s name.

The number of members of a DAC shall not exceed 149.  This does not include persons in the employment of the DAC and persons formerly in the employment of the DAC.


Constitution of DAC I

The form of the constitution of a DAC comprises a memorandum of association and articles of association which are collectively called the constitution.  It must be in the form set out in Schedule 7 or Schedule 8 to the Companies Act, as the case may be or as near to that, as the circumstances permit.

The memorandum of association shall state

  • the name of the company;
  • that it is a Designated Activity Company
  • whether limited by shares or guarantee;
  • its objects;
  • that the liability of members is limited; and
  • its share capital and its division into shares of fixed amounts (in the case of a DAC limited by shares only).

Constitution of DAC II

In the case of a DAC limited by guarantee, the constitution shall state that each member undertakes in the event that the company is wound up while he is a member, or within one year thereafter, that he will contribute to its assets such amount, subject to the limit of the guarantee, as may be required for payment of debts and liabilities of the company contracted before he ceases to be a member, payment of the costs of winding up, and adjustment of rights as between contributories.

The constitution shall be produced in a single document (comprising a memorandum and articles) in legible form or in electronic form provided that it is capable of being reproduced in legible form. It shall be signed by the subscribers, in the presence of at least one witness who shall attest the signature, or be authenticated in such manner as may be prescribed. The constitution shall state the number of shares taken by each subscriber.

The articles of the DAC may contain regulations.  Subject to this, it is governed by the Companies Act.  The mandatory provisions may not be changed.  The optional provision may be changed, to the extent that the constitution so provides.  The articles, instead of containing any regulations may consist solely of a statement that the provisions of the Companies Act are adopted.


DAC Name I

The name of the Designated Activity Company shall end with the words: “Designated Activity Company” or Cuideachta Ghníomhaíochta Ainmnithe.  This may be abbreviated to “dac” “d.a.c.”, cga” or “c.g.a.” including either such abbreviation in capitalised form or lower case.

A DAC which carries on business in a name other than its corporate name must register in the Register of Businesses Names.   A person or a body, which is not a DAC may not carry on a trade, profession or business under a name which includes, “designated activity”, or any similar words or abbreviations or its Irish language equivalent

A Designated Activity Company may not use a name, which may reasonably be expected to give the impression that it is any other type of company, where this is material to any person.  Contravention is an offence on the part of the DAC and any officer in default.


DAC Name II

A DAC may be exempted from using the words “dac” or “cga” as part of its name, if

  • its objects are for the promotion of commerce, science, education, religion, charity or other prescribed object and its constitution requires;
  • its profits and income to be applied to the promotion of its objects;
  • its constitution prohibits distribution to members; and
  • requires all assets that would be available to be transferred on a winding up, to be transferred to another company with the same objects.

A director or secretary of the company must deliver a statement in the prescribed form that it will comply with these requirements on its formation.

A body enjoying the exemption may not alter its constitution so that it ceases to qualify.  The Registrar may direct a DAC to change its name if it appears to be in breach of any of the conditions.  A DAC directed to change its name must do so.


DAC Capacity

A DAC shall have the capacity to do any act or thing stated in its objects clauses as set out in the memorandum.  The reference to an object includes reference to anything stated in the memorandum to be a power to do anything, whether or not the word power is used.

If an object is stated in the DAC’s memorandum, the capacity of the DAC extends to do anything which appears to be requisite, advantageous or incidental to or facilitate the attainment of that object, consistent with law.

The validity of an act done by a DAC is not to be called into question on the ground of lack of capacity by reason of anything in its objects.  However, a member of the DAC may bring proceedings to restrain the doing of an act which is beyond the DAC’s capacity.  No such proceedings shall lie in respect of any act done in fulfilment of a legal obligation arising from a previous act of the DAC.

It remains the duty of the directors to observe the limitations on their powers arising from the DAC’s objects. Acts by the directors which, but for the relieving provisions, would be beyond its capacity, may be ratified by special resolution of the members. A special resolution shall not affect any liability incurred by the directors or any person for breach of duty.  If relief is to be given to the directors concerned, this must be separately given by special resolution.

A party to a transaction with a DAC is not bound to enquire as to whether it is permitted by its objects.


DAC Constitution Amendments I

A DAC may alter its memorandum and articles of association by special resolution.  It may abandon, restrict or amend any existing object. Notice of the special resolution to alter the objects must be given to the holders of the DAC’s debentures who are entitled to object to alterations.  If the written resolution procedure is used, notice of the proposed use of that procedure must be given not less than 10 days before and shall be furnished to the debenture holders with the text of the resolution.

An application may be made to the court to cancel the amendment by the holders of 15% in nominal value of the issued share capital or debenture capital, in the latter case, who are entitled to object to alteration.  The applicant must not have voted in favour of the alteration.  It must be made within 21 days after the date of the resolution.  It may be made on behalf of one or more persons.

The court may make an order cancelling the alteration, either in whole or in part, or confirming it on such conditions as it sees fit.  It may adjourn the proceedings so that arrangements can be made for the purchase of the dissenting member or debenture holder’s interest.  The court order may provide for the purchase of such interest and the making of such alterations as may be required in consequence.


DAC Constitution Amendments II

In the case of a DAC which is permitted to omit the words “DAC” or “CGA” from its name, notice of the meeting at which the special resolution is proposed, or the written resolution must be given to the Registrar of Companies.  This enables the Registrar to object to a change in charitable or equivalent status.

The amendment takes effect 15 days after the meeting provided that no court application is made.  If an application is made, notice must be given to the CRO immediately. If an order is made, notice must be given to the Registrar within 15 days of the date of the order, by way of a certified copy of the order.

Subject to the conditions in the Act and what is specified in the memorandum, a DAC may alter or amend its articles by special resolution. Provisions contained in the memorandum which could have been contained in the Articles may be altered by special resolution.  The special resolution may be cancelled on application to the court, insofar as, it is not confirmed.

The power to alter the memorandum does not apply where the memorandum itself prohibits the alteration. The power may not, in any event, authorise any variation or abrogation of the special rights of any class of member.

Where subsequent to registration, an amendment is made to the memorandum of association affecting the share capital or any other of the matters above, it must be restated, registered and shall take effect accordingly.


References and Sources

Primary References

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)   Ch.30  Courtney

Keane on Company Law 5th Ed. (2016) Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Gore-Browne on Companies

Palmer’s Company Law