Your Company’s Constitution – Time for a change?

Your Company’s Constitution – Time for a change?

By |2018-07-30T10:53:01+00:00July 30th, 2018|News|

Every company formed in Ireland must have a Constitution (formerly known as a Memorandum & Articles of Association).
It is important that the company’s Constitution is a well written document, as it sets out the rules and regulations of how a company is to be internally governed, and how it will conduct its business activities. The Constitution also sets out the rights of various members of the company, including its directors and shareholders.
A Private Limited Company may have a standard one-page Constitution that takes in the Companies Act 2014 (the “Act”) in its entirety, without amendment. Alternatively, it may adopt a tailor-made Constitution that is reflective of the business of the company and that makes modifications to the optional provisions in the Act. It is important to ensure that no provisions of the Act are contravened when adopting your own Constitution. It is always advisable to seek professional advice when drafting your Constitution.

Companies Act 2014
Before the introduction of the Act, Private Limited Companies had a Memorandum and Articles of Association. The Act replaced the Memorandum & Articles of Association with a Constitution for Private Limited companies. Both terms are typically used for other company types, such as Companies Limited by Guarantee (CLGs) as the Constitution for a CLG contains a Memorandum & Articles of Association.

Why Update?
Any company set up before the Act commenced on 1st June 2015 should update its Constitution so that it references the new legislation.
Where a Constitution has not been updated in line with the Companies Act 2014, the company secretary may find it difficult to provide advice on the interpretation of the clauses in the Constitution, especially if it contains references to previous Companies Acts that may no longer apply (retirement by rotation, AGMs that must be held in Ireland and, for Private Limited Companies, that there must be a minimum of 2 Directors).
It is important to bear in mind that both internal (directors, shareholders) and external stakeholders (Investors, Banks, Creditors etc) will look to the Constitution for guidance and that the Constitution is a publicly filed document in the CRO. From an optics and reputational point of view, it is important for the directors to ensure that what is available publicly is reflective of the current position of the Company.

How to Update
Any change to the Constitution of a company requires a special resolution of the members; meaning the change must be approved by 75% of the members entitled to vote at an EGM. If the members elect to modify or alter the Constitution, the company secretary must then notify the Registrar of Companies and complete the necessary filings with the Companies Registration Office.

About the Author:

Gráinne Howard