What should my company have in its constitution? Irish Formations has produced a standard form of constitution for the LTD companies we establish, based on our experience of clients’ requirements. The most popular company type is a Private Company Limited by Shares (LTD). We have sought to modify certain provisions which exist as the default position under the Companies Act 2014 (the “Act”) where we have found in our experience sensible to do so. The following is an explanation of each article of our form of constitution, with an explanation as to the change made from the default position under the Act, and the reason for that change.
Under Section 69 of the Act, a company may not allot shares unless the allotment is authorised, either specifically in relation to that allotment, or generally, by an ordinary resolution or by the constitution. Our Constitution gives that authorisation, generally, for the company to issue new shares. Furthermore the act provides that a company proposing to allot shares must not allot shares to any non-member unless it has first made an offer to existing holders of shares, of the same class, on the same or more favourable terms, and Section 69(b) provides that, likewise, the company must not allot any shares to any existing shareholder unless it offers shares to all other person who hold shares in the same class, on a pro rata basis. Section 69(12) allows a company to dis-apply Section 69(6), and Article 6(b) does exactly this.
Our Constitution also generally gives the company the authority to give financial assistance for the purposes of an acquisition in any of its shares, or shares in its holding company. The Act provides that in order for a company to be able to acquire its own shares, that acquisition must be authorised either by the constitution of the company, by the rights attaching to the shares in question or by a special resolution. Our Constitution gives the authorisation, in the constitution, for the purposes of the Companies Act 2014.
Our Constitution confirms the power of the directors to allot shares under Section 69 of the Act, and further delegates power to the directors to exercise the company’s power to grant financial assistance and acquire its own shares.
The Act provides that a director of the company appointed by the other directors to either fill a casual vacancy or as an addition to the existing directors shall hold office only until the next following AGM, and shall then be eligible for re-election. Article 9 of the constitution dis-applies this provision in that a director so appointed shall not be required to retire at the next AGM.
Our Constitution provides additional clarity in relation to an alternate director, being a director appointed by an existing director in his or her place temporarily. Within our Constitution we clarify that a signature of an alternative director shall suffice in place of the signature of the director that appointed him or her in relation to written resolutions of directors.
Article 12 of our Constitution supplements Section 160 of the Act by specifically providing that a committee of directors may be permitted to allow a person who is not a director to attend their meetings, but not to have a vote at such meetings. In the absence of this provision, the default position under the Act is that this non-director will have a vote at a committee meeting and there is a danger in allowing decisions to be reached and taken by the input of persons who are unaccountable to the company for their actions. This is considered the safest course in relation to such committees.
Section 228(1)(d) of the Act provides that a director shall not use the company’s property, information or opportunities for his or her own benefit unless that use has been expressly permitted by the company’s constitution or has been approved by resolution of the company in a general meeting. Article 13 allows the reasonable personal use by a director of the property of the company made available for his or her use in connection with the business of the company to be permitted generally. This is a standard amendment to make sure that a director isn’t inadvertently caught Section 228(1) by the reasonable personal use of, for example, a mobile phone given to him or her for his or her us in connection with his/her office.
The default position under the Act in relation to the chairman having a second or casting vote at meetings of directors, meetings of committees and general meetings of the company is that the chairman will have a second or casting vote in the event of an equality of votes. Article 14 dis-applies the second or casting vote of a chairperson at meetings of directors, committee meetings or general meetings of the company.
Article 15 adds to the protection of officers of the company which is provided in Section 233 and 234 of the Act. Section 233 provides that in proceedings against an officer of the company, if it appears to the court that the officer is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he or she acted honestly and reasonably and that he or she ought to be excused for the wrong concerned and relieved from his or her liability, the court may grant relief.
Section 234 relates to an officer who, apprehending that a claim might be made against him or her, may apply to the court to be relieved from liability on the same basis – i.e that he or she acted honestly and reasonably and, having regard to all the circumstances of the matter, ought to be excused. Article 15 expands this by saying that such officer shall be entitled to be indemnified out of the assets of the company against losses or liabilities which he or she may occur in defending himself/herself where judgement is given in his or her favour or where he or she is acquitted, or in the circumstances set out in 233 and 234 of the Act where the court grants him or her relief.
Article 15(b) goes further in that it gives the officer of the company an entitlement to be indemnified out of the assets of the company against all losses or liabilities which they may incur in the execution of their duties and provides that no officer would be liable to the company for any loss or damage etc that the company may suffer in the execution of his duties, to the extent that this provision is not void under Section 235 of the Act. Under Section 235, this exemption cannot extend to any liability of an officer which, by virtue of law would otherwise attach to that officer in respect of negligence, default, breach of duty or breach of trust of which he or she may be guilty in relation to the company.
Under Section 183(5) of the Act, a proxy or a power of attorney or other authority must be deposited at the registered office of the company no later than 48 hours (or such less time period as the company’s constitution may provide) before the holding of the relevant meeting, or the time appointed for the taking of the relevant poll. Article 16 makes express provision for the proxy or power of attorney to be deposited at any time prior to commencement of the meeting or the time appointed for the taking of the poll.
If you need to discuss your company formation requirements, don’t hesitate to contact us.