The link between purpose-led businesses, ‘B Corp’ certification and the Better Business Act
Out-Law Guide | 11 May 2018 | 9:46 am | 7 min. read
This guide was last updated in May 2018
Company law was once virtually identical in Ireland and the UK but despite the fact that the Irish Companies Act 2014 has taken some inspiration from the UK Companies Act 2006 there are significant differences between the two regimes.
Brexit may be causing company directors, investors and professional advisers in the UK and Ireland to look with more seriousness at expanding into the other country, and it is important for them to know where company law diverges.
The differences in company law are not dramatic and there is a welcome familiarity. Both are common law jurisdictions and both company law regimes started life under the same legislation pre-Irish independence. Indeed, many English company law cases continue to carry weight in Ireland.
However; there are some key differences, the most obvious of which is that Irish companies must go through a summary approval procedure (SAP) before it can undertake certain activities.
The requirement for a SAP on a relevant activity can be an unwelcome additional step when conducting a high pressure transaction, such as, approving financial assistance where the target's assets are secured in favour of a lender. Directors of Irish companies will need to provide a solvency declaration under a SAP and are potentially liable for all debts and liabilities of that company if it is found that the declaration was provided without reasonable grounds. Unreasonable grounds are presumed where the company is wound up within 12 months after the declaration and its debts are not satisfied.
The SAP process is similar to a UK private limited company undertaking a share capital reduction using a directors' solvency statement procedure, but applies in a broader range of circumstances, not only on a share capital reduction.
Activities requiring a SAP in Ireland but where there is no equivalent process in the UK are:-
Where a company is required to provide financial assistance for acquisitions of its own shares a SAP is required in Ireland, but a 'white wash' procedure was abolished in the UK for private companies, and so no SAP-equivalent process is required in this case in the UK.
When companies are entering into loans, quasi-loans, guarantees and security to or on behalf of directors a SAP is required in Ireland. In the UK a prohibition on UK companies providing loans to directors or persons connected to directors has been abolished for private companies, so it is permissible provided shareholder approval is first obtained.
When a company is commencing a member's voluntary winding-up of a company a SAP is required in Ireland, and in the UK a SAP-equivalent process is required for a members’ voluntary liquidation (MVL).
As mentioned above, directors of Irish companies providing a solvency declaration under a SAP are potentially liable for all debts and liabilities of the company if the declaration was stated without reasonable grounds. This is something anyone should be aware of if considering becoming a director of an Irish company. Outgoing directors will not want to provide such a declaration and incoming directors may also be nervous about providing such a declaration for a company they do not know intricately.
In broad terms the same main types of company which are found in the UK can be found in Ireland, and their functions are very similar. However, two key differences are that:-
There is no equivalent of a UK limited liability partnership (LLP) in Ireland. However, Irish law firms will soon be able to convert to a form of LLP based on the US model and which will limit partners' liability, with some exceptions, such as for fraudulent practice. Ireland does also have limited partnerships (LPs) and general partnerships, which are governed by the same form of legislation in Ireland as in the UK. This legislation pre-dates Irish independence.
There are some other differences between company law in Ireland and the UK.
In the UK, one person can be the sole shareholder and director of a private limited company, and there is no need to appoint a company secretary. In Ireland, this is not possible as a company secretary must always be appointed to a company and where a company has only one director the company secretary must be different to the director. Irish company directors also have a statutory duty to ensure that the company secretary has the appropriate skills and resources.
In Ireland company names can be reserved for up to 28 days, which cannot be done in the UK. However, there is no same-day company incorporation service in Ireland like there is in the UK, and the process normally takes several working days.
Irish company law does not prescribe a long-form set of 'model articles' as English law does. An Irish company's standard constitution is normally very short with the majority of terms simply incorporated via various sections of the Irish Companies Act 2014. This can mean it is difficult to ascertain all of an Irish company's governing terms in one place, albeit there is nothing preventing an Irish private limited company adopting a more comprehensive constitution which might appear similar to a typical UK private limited company's articles of association.
Generally, a director of an Irish company is restricted to holding 25 directorships in other Irish companies. There is no equivalent limit in the UK.
Subject to certain exceptions, an Irish company must have at least one director who is resident in the European Economic Area (EEA). There is no equivalent requirement for a UK company.
Directors of Irish plcs and private companies with gross assets exceeding €12.5 million and turnover exceeding €25m should also know that they are required to acknowledge in that company's financial statements that they are responsible for securing the company's compliance with Irish company and tax laws, breaches of which constitute the most serious form of offence under Irish company law. There is no equivalent requirement in the UK.
Although the UK has dispensed with the need for UK private limited companies to hold an AGM, Irish company law has not completely removed this obligation for Irish private limited companies. In order to dispense with the requirement to hold a physical AGM, an Irish private limited company's shareholders must sign a unanimous written resolution prior to the date on which it would otherwise need to hold its AGM, agreeing to dispense with the need for a physical AGM but approving the relevant matters, such as approval of annual accounts.
AGMs aside, an Irish private limited company can pass written shareholder resolutions and avoid the need for a general meeting. But if it is relying on a majority written resolution for a special resolution, which means greater than 50% of voting shareholders' approval for ordinary resolutions or 75% for special resolutions, the relevant resolution is not deemed passed until 7 days or 21 days after the majority of signatures is obtained. In the UK any written resolution is passed immediately once the relevant majority of shareholders have signed it. For Irish private limited companies with a large number of shareholders it can therefore take longer to obtain shareholder approvals, unless unanimous approval can be obtained.
A UK private limited company can, unless its articles of association state otherwise, execute deeds through one director in the presence of a witness. Except in limited circumstances, Irish private limited companies still need to execute deeds using a seal, executed by two directors or one director with the company secretary, or two other persons appointed for this purpose by the board of directors. This can cause practical difficulties if the two signatories are not available for execution or if the seal is unavailable. One way an Irish company can potentially avoid the need to use a seal and 2 signatories when executing deeds is to appoint an attorney on its behalf who, if properly appointed, can execute deeds alone on behalf of the relevant company without affixing a seal. However, the instrument appointing the attorney ought to be executed as a deed by two officers or authorised signatories affixing the seal, as there is no clear statutory provision stating that this need not be the case.
Subject to certain exemptions and reliefs, the stamp duty rate on share acquisitions is 1% in Ireland. In the UK it is 0.5% rounded up to the nearest £5 per stock transfer form. Whilst stamp duty payments can be made online in the UK, a stock transfer form still needs to be physically stamped by the stamp office in Birmingham. In Ireland, both stamp duty payments and stamping can be fully processed more efficiently online. The only potential downside is that a purchaser will need specific tax reference numbers for each seller, the target company, and itself, which can cause practical and legal difficulties if these have not been obtained from the sell-side pre-completion.
Dorian Rees is a corporate law expert at Pinsent Masons, the law firm behind Out-Law.com
The link between purpose-led businesses, ‘B Corp’ certification and the Better Business Act