Companies Act 2014 impact & implications for Irish charities

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The WheelThe Companies Act 2014: The Impact and Implications for Irish Charities

29 January 2015


The Companies Bill was published on 21 December 2012 by the Minister for Jobs, Enterprise and Innovation.

It also introduces a number of reforms, which are designed to make it easier to operate a company in Ireland.

Set out across 25 Parts its aim is to ease accessibility of the law for each different company type

Consolidates the 16 Companies Acts as well as the many statutory instruments and court judgements

The aim is to make it easier for companies to know and understand their legal obligations. It will also implement a series of major reforms to reduce red tape and make it easier and

cheaper to run a company in IrelandThe Companies Act 2014 was signed into law on 23 December 2014 and commenced on 1

June 2015.The Companies Act 2014 is available for download at http://www.oireachtas.ie

Background to the Companies Act 2014

http://www.oireachtas.ie/


New Company Types

The Companies Act 2014 creates new company types to replace the current types.LTD – Private Company Limited by SharesDAC – Designated Activity Company limited by shares or by guaranteePLC – Public Limited CompanyPUC – Public Unlimited CompanyPULC – Public Unlimited Company with no share capitalULC – Private Unlimited CompanyCLG – Company Limited by Guarantee (these are public guaranteecompanies)

Organisations such as charities, sports clubs and management companies, which previously incorporated as public companies limited by guarantee without a share capital, will now incorporate as Companies Limited by Guarantee (CLGs).


If the company does not change the name during this transitional period by submitting an amended constitution using Form N3, the Registrar of Companies will change the name of the company and issue a new certificate.

Changes to the company name will affect company letterheads, stationery and signage.

Any documentation submitted to the CRO after the end of the transition period which bears the incorrect name will be refused.

New Company Types: Conversion Process


There are a number of changes proposed to the form B1

It is proposed to include the certification of the Financial Statements ("Accounts") as part of the Form B1

The forms will not be used until commencement of the Act on 1 June 2015.

The first page of the B1 will include a tick box for the form B73 (notice of change of ARD).

Companies Registration Office: Revised B1 Form (Annual Return)


Insert the date of the start and end of the financial year covered by the financial statements

A company may, once in every five years, by filing a form B78a with the Registrar, apply to alter its current or its previous financial year end date, which will then become its financial year end date for the future.

Under s.996 and s.1220, companies which have been formed for charitable purposes, and which have been granted an exemption by the Charities Regulatory Authority, are not required to attach financial statements to their annual return.

However they are required to annex a special auditors report to the return unless they are entitled to and have availed themselves of audit exemption

Companies Registration Office: Filing Financial Statements


A registered person under section 39 is a person authorised by the company to bind the company generally.

This is to save third parties having to look to Articles or refer to Board Minutes to see who is authorised to bind the company.

If a Board of Directors wishes to give any person (eg CEO or Senior Managers) power to bind the company generally (not just in specific transactions), it can register that person with the CRO.

Notification to the CRO of authorisation and de-authorisation of a Registered Person can be effected using Form B46.

Where "not applicable" or "none" is appropriate, please state this.

Companies Registration Office: Section 39- Registered Person-Binding a Company


Directors Duties Rationale

The codification of these duties will now set out clear rules of the principal fiduciary duties to which a Director will have to consider when acting as an officer of the Company.

This will act as a more accessible checklist of the rules and regulations for any person who is, or is considering becoming a Director of a Company.

Ultimately, this will result in a greater awareness of the rules and regulations that a Director must consider and lead to better governance practices within Companies.

“Easier to comply, harder to deny.”

With this increased responsibility placed on Directors, it is extremely important that they understand the obligations that are placed on them.


Directors Duties: Codified Fiduciary Duties

8 Fiduciary Directors

DutiesCodified under Section 228

To act honestly and

responsibly

Act in accordance

with Company’s Constitution

A Director will not use the Company's

property, information or

opportunities for their own interest

To exercise care, skill and

diligence

Avoid Conflicts of Interest

Have regard to the interests of

Members

To act in good faith for the

best interests of Company

Not to restrict power of Director’s

independent judgement


Company Secretary Role

All Companies required to have a Company Secretary (section 129(1))

Duty placed on the Director to appoint a Company Secretary who has the:

“skills or resources necessary to discharge his or her statutory and other duties.” (section 129(4))

To comply with new requirement Directors may seek to:

appoint a Company Secretary who has the necessary skills.

obtain Company Secretarial Services.

Single Director Companies will require that Company Secretary to be a different person (section 129(6)).

Some other key duties:

Duties delegated by the Board of Directors without deviating from the secretary’s statutory and other legal duties

(section 226(4)).

the skills necessary so as to enable him or her maintain (or procure the maintenance of) the records (other than

accounting records) (section 226(2)).

Secretaries will also be obliged to acknowledge their duties and obligations


The consolidation of the law in this area is an improvement in accessibility and transparency, and is set out in Part 6.

Part 6 refers to “financial statements” and “accounting records”, where legislation previously referred respectively to “accounts” and “books of account”. This reduces the risk of confusion arising from the use in practice of “accounts” to refer both to “financial statements” and “accounting records”.

CLG can for the first time claim audit exemption should they meet the required criteria.However, be careful of the Charities Act 2009 requirements!

Ability to fix defective Financial Statements with the new B1 X Form.

Auditors’ reporting of offences- no longer ambiguous

They will now be Category 1 and 2 offences only.

Directors’ report to confirm (so far as directors are aware) auditors have relevant information

increases directors’ accountability for audit.

Introduction of Directors Compliance Statement: “Comply or Explain”

Changes in respect of Financial Statements


Directors Compliance Statement- “Comply or Explain”

New Provision in the Act Compliance with Statement for “Large Companies” i.e. balance sheet €12.5 million and an

annual turnover of €25 million. Compliance Statement must have:

that the directors have drawn up a compliance policy statement;That the directors have put in place appropriate arrangements or structures that are, in directors’

opinion, designed to secure material compliance with the company’s obligations under company law and tax law; and

that the directors have conducted a review during the relevant financial year of the arrangements and structures and have taken such steps to ensure the company’s compliance with the Companies Act 214 and Tax law, or explain why this has not been done.

However, explanation must be given for non compliance with these obligations.Non Compliance with this Act or tax law, a failure to comply can be considered to be an

offence (Section 225) This will be a category 1 or a category 2 offence if not complied with or a serious Market abuse offence or a serious prospectus offence.


SORP is a set of recommended practices issued by the Charity Commissioners in the UK to advance and maintain standards of reporting in the charity sector.

The most recent version SORP 2005. New SORP effective from 1 January 2015Objectives:

improve the quality of financial reporting enhance the relevance, comparability and understanding of information presented in accounts; provide clarification, explanation and interpretation of accounting standards and of their application in

the charity sector assisting those who are responsible for the preparation of the Trustees’ Annual Report and Accounts

One of main differences between accounts of a charity and that of a commercial entity is the format of disclosing incoming and outgoing resources between restricted and unrestricted funds and the analysis of movements on such fund balances in the charity’s accounts.

SORP


Key funds in a charity

Unrestricted Funds

Designated Funds

General Fund

Restricted Funds

Restricted Funds

Endowment Funds


Format of Statement of Financial Activities (SOFA) simplified

Income recognition (probable v’s certainty)

Donated goods & services (gifts for resale/own use) (record when received rather than when sold – but

can use cost v benefit)

Government grants (no condition=a/c when receivable, if conditions, a/c when conditions are met)

Financial instruments/investments (mixed motive investments)

Branches / subsidiary (incorporated branches to be consolidated)

Commitments (commitments and obligations with conditions disclosed, obligations with no conditions

recorde).

Trustees’ annual report MUST/SHOULD/MAY Cash flow statement FRS allows certain disclosure exemptions. SORP not allowing such exemption Employee benefits accrue unused annual leave carried forward Substance over form restricted v unrestricted Multi employer defined benefit pension schemes required to recognise a provision for agreed

contributions and disclose payment plans

Key changes in SORP (Exposure draft)


Bastow CharletonMember Crowe Horwath InternationalMarine HouseClanwilliam CourtDublin 2Ireland

www.crowehorwath.ie

Bastow Charleton is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal entity. Bastow Charleton and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member.

Contact us

For further details on Companies Act 2014 ,SORP, or any other financial or advisory services :

Sharon Gallen, Audit Partner [email protected] | 01 488 2200

Roseanna O’Hanlon, Audit Partner [email protected] | 01 488 2200

Shane McQuillan, Advisory Partner [email protected] | 01 488 2200

John Byrne, Tax Partner [email protected] | 01 488 2200

Grainne Howard, Company Secretarial Manager [email protected] | 01 488 2200

Companies Act 2014 impact & implications for Irish charities

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