Companies act 2014 Impact & implications for irish charities

1© 2015 Crowe Horwath
Audit | Tax | AdvisoryAudit | Tax | Advisory
The Wheel
The Companies Act 2014: The Impact and Implications for
Irish Charities
29 January 2015

Contents
Welcome
Background to The Companies Act 2014
New Company Types and the Conversion Process
Companies Registration Office
Directors Duties and Role of the Company Secretary
Audit and Financial Statements & The Charities Act 2009-SORP
Questions and Answers

Welcome from Roseanna O’Hanlon, Crowe Horwath
Crowe Horwath, in association with The Wheel, welcomes you to today’s event
This seminar will provide Wheel members with an overview on the Companies Act 2014, as it
pertains to charities that are registered companies, and will ensure that members have
information and practical knowledge to ensure that their organisations (if they are a registered
company) comply with the Act.
Crowe Horwath in Ireland has an extensive client base across the non-profit sector, including
some well-known domestic charities and INGOs
Our UK sister firm has the largest non-profit practice of any of the UK accountancy and
advisory firms, inc the “Big Four”
We are auditors to many charities, we provide tax advice, and we deliver a wide range of
consulting and advisory services
Most importantly, we have strong empathy for the non-profit sector: we understand charities,
how they work, and how they relate to external stakeholders

presented by
Gráinne Howard
The Companies Act 2014

The Companies Bill was published on 21 December 2012 by the Minister for Jobs, Enterprise
and Innovation, Mr. Richard Bruton TD.
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
On the publication of the Bill, Minister Bruton said:-
"The Companies Bill is a groundbreaking piece of legislation. It will consolidate the 16
Companies Acts as well as the many statutory instruments and court judgements so as 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 Ireland, and will make a real difference to our international competitiveness.
It will save businesses across Ireland many millions of euro in reduced professional fees,
compliance costs and red tape, and will ultimately make it easier to create jobs"
Background to the Companies Act 2014

Background to the Companies Act 2014
The Companies Act 2014 was signed into law on 23 December 2014 and will commence on 1
June 2015.
Companies continue to operate under The Companies Act 1963-2013 until commencement.
The Charities Act 2009 is not included in the previous Acts that have been repealed and
remains in force.
The Companies Act 2014 is available for download at http://www.oireachtas.ie

presented by
Gráinne Howard
New Company Types

Contents
New Company Types
Company Limited by Guarantee
Name Change
Conversion Process
Revenue Commissioners

New Company Types
The Companies Act 2014 creates new company types to replace the current types.
LTD – Private Company Limited by Shares
DAC – Designated Activity Company limited by shares or by guarantee
PLC – Public Limited Company
PUC – Public Unlimited Company
PULC – Public Unlimited Company with no share capital
ULC – Private Unlimited Company
CLG – Company Limited by Guarantee (these are public guarantee
companies)
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).

Company Limited by Guarantee
“Company Limited by Guarantee” or “Cuideachta faoi theorainn Ráthaíochta” must form the
end of the company name. Companies Limited by Guarantee are governed by Part 18 of the
new Companies Act.
An abbreviation to either “c.l.g.”, “clg”, “c.t.r.” or “ctr” in any usage after the company’s
registration is also acceptable.
 There will be a transitional period of 18 months from June 2015 by which guarantee
companies incorporated under previous Companies Acts, can continue to use
limited/teoranta in their name.
Exemption to Change the Company Name
Companies which availed of the exemption under section 24 of the CA 1963 to not have
limited/teoranta after their names will continue to be allowed to apply the exemption
regardless of the fact that the Acts have been repealed - section 1181 refers.

Prior to name change
ROTHA TEORANTA
(THE WHEEL LIMITED)
Name Change

Following name change
ROTHA CUIDEACHTA FAOI THEORAINN RÁTHAÍOCHTA
(THE WHEEL COMPANY LIMITED BY GUARANTEE)
Name Change (Cont’d)

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.
Conversion Process

Conversion Process (Cont’d)
Memorandum and Articles of Association
 In accordance with 1176 (6) the memorandum and articles of association will continue in force save to
the extent that they are inconsistent with a mandatory provision.
 Review of the companies memorandum and articles of association highly recommended to ensure that
they comply with all mandatory provisions of the Act. M&As that are in contravention of the Act will lead
to confusion as their terms will be misleading.
 Doing nothing is not recommended as the conversion process offers a company the opportunity to
discuss with its advisers, directors and members the steps to be taken to ensure that the company has
the required regulations incorporated into its new constitution.
 Taking no action means the company will not have had an opportunity to review its current articles of
association to see if any of those provisions are contrary to mandatory provisions.

Revenue Commissioners
 There would be appear to be no change as per Revenue requirements in regards to the Articles
of Association:-
 The name of the charity;
 The main objects of the charity which should fall under one of the four headings:-
I. Trusts for the Relief of Poverty
II. Trusts for the Advancement of Education
III. Trusts for the Advancement of Religion
IV. Trusts for Other Purposes Beneficial to the Community
 The powers of the charity (which allow the charity to carry out its function, e.g. the power to
fund-raise.
 Details of its geographic range or operation;
 Its rules, which should cover membership, appointments and dismissals, executive committees,
meetings and any other rules required for the proper conduct of the organisation

Course of Action
Course of
Action for
ARTICLES OF
ASSOCIATION
Full review of the articles,
modifying where
necessary and adopting
any new favourable
provisions arising out of the
Companies Act 2014
Maintain existing Articles
as constitution modifying
only where necessary
Maintain existing Articles
as the Constitution.
Mandatory provisions will
prevail and company will
not necessarily have
availed of any favourable
provisions

presented by
Gráinne Howard
Companies Registration
Office

Contents
New Forms
Revised B1 Form
Filing Financial Statements
Company Contacts
Section 39
Company Officers must be over 18

Series of new/revised forms will be introduced:-
New/Revised Forms

 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).
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
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.
Section 39- Registered Person-Binding a Company

 A company email address is required for notices to
issue from the CRO.
 The Office also intends to issue e-certificates for
companies where they re-register or convert.
Company Contacts

 More information regarding the secretary is
required.
 A date of birth is necessary where the secretary is
an individual.
 Under the new Act, all directors and secretaries
must be over the age of eighteen.
 Where the secretary is a body corporate, the
registered office and registration number of the
body corporate must be stated.
Company Officers must be over 18

presented by
Albert Farrell
Directors Duties and Role of
Company Secretary

Directors Duties and Role of Company Secretary
History of Directors Duties
Rationale of Directors Duties
Codified Fiduciary Duties
Other Important Duties to Consider
Breaches and Directors Penalties
Role of Company Secretary

History of Director Duties
Developed by the UK and Irish Courts over the past 150 years
Origins developed by the older concepts of equity and trusts.
Fiduciary duties being owed by the Director to act solely in Company’s interests.
Previous sources of Directors Duties for example can be found in:
Memorandum & Articles of Association
Common Law
Companies Act 1963-2013
These common law fiduciary duties have now been codified in the new Companies Act.

Rationale of Directors Duties
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.

Codified Fiduciary Duties
8 Fiduciary
Directors
Duties
Codified 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

It is duty of each director of a company to ensure that the Companies Act 2014 is complied
with (section 223(1)).
Directors will also be obliged to acknowledge their duties and obligations when consenting to
act (section 223(3)).
“I acknowledge that, as a director, I have legal duties and obligations imposed by the
Companies Act, other statutes and at common law.”
Directors to have regard to interests of employees (section 224).
Duty of director to disclose his or her interest in contracts made by company (section 231).
Other Important Duties to Consider

Breaches of Duties and Directors Penalties
 Breaches of certain duties: liability to account and indemnify
 The Companies Act has now increased the penalties for non compliance with the Companies Act 2014. These are as
follows (S. 871):
Category
Offence
Summary Conviction Conviction On
Indictment
Example
1 Class A Fine or
imprisonment for a term not
exceeding 12 months or
both.
Fine not exceeding
€500,000 or imprisonment
for a term not exceeding
10 years or both.
If any person is knowingly a party to the carrying on of the
business of a company with intent to defraud creditors of the
company or creditors of any other person or for any fraudulent
purpose, the person shall be guilty of a category 1 offence.
2 Class A Fine or
exceeding 12 months or
both.
Fine not exceeding
€50,000 or imprisonment
for a term not exceeding
5 years or both.
Obligation to keep adequate accounting records
3 Class A Fine or
exceeding 6 months or both.
N/A Failure to provide the directors' report to the Companies
Registration Office or Members in a manner prescribed by
section 332 of the Companies Act 2014.
4 Class A Fine.
A “Class A fine” is a fine
within the meaning of the
Fines Act 2010 (i.e. a fine
not exceeding €5,000).
N/A Failure to provide a copy of the constitution to its members.

The Role of Company Secretary
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 the Company Secretary be a different
person (section 129(6)).

Role of Company Secretary (Cont.)
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 :
“I/We acknowledge that, as a Secretary, I/we have legal duties and obligations
imposed by the Companies Act, other statutes and at common law.” (section
226(5)).

presented by
Roseanna O’Hanlon
Audit and Financial
Statements & The Charities
Act 2009-SORP

Contents
Changes in respect of Financial Statements
Director Compliance Statements- “Comply or Explain
Charities Act 2009
SORP
What is SORP?
Objectives of the SORP
Key funds in a charity
Fund Types
Key funds in a charity

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.

Charities Act 2009
Sets out a definition of charitable purpose:
The prevention or relief of poverty or economic hardship
The advancement of education
The advancement of religion
Any other purpose that is of benefit to the community.
Relevant sections for the purpose of financial reporting are Section 47 to 54.
A charity trustee who contravenes these sections shall be guilty of an offence.
A defence for the defendant to prove that they believed, on reasonable grounds, that a
competent and reliable person was duly charged with the duty of ensuring compliance
and was in a position to discharge that duty.

Charities Act 2009 (Cont’d)
Section 47. Proper books of account
Section 48. Annual statement of account
Section 49. Annual returns under Companies Acts
Section 50. Annual audit or examination of accounts
Section 51. Regulations in relation to audits etc.
Section 52. Annual Report
Section 53. Requirement to provide information
Section 54. Public inspection of annual reports etc.

SORP
(statement of recommended practice)
http://www.charitysorp.org/download-the-full-sorp/

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 2015.
What is SORP?

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.
Objectives of the SORP include:

Key funds in a charity
Unrestricted
Funds
Designated
Funds
General Fund
Restricted
Funds
Restricted
Funds
Endowment
Funds

Fund Types
Designated funds are unrestricted funds that have been earmarked for a particular purpose
by the trustees.
General funds are unrestricted funds which have not been earmarked and may be used
generally to further the charity’s objects.
Restricted funds are funds held for a purpose as specified by the donor. These funds cannot
be used for any other purpose.
Endowment funds are donations that have been given to a charity to be held as capital.

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
Key changes in SORP (Exposure draft)

Key changes in SORP (Exposure draft)
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

Questions?

Bastow Charleton
Member Crowe Horwath International
Marine House
Clanwilliam Court
Dublin 2
Ireland
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 we offer to
the not-for-profit sector, get in touch:
Sharon Gallen, Audit Partner sharon.gallen@crowehorwath.ie | 01 488 2200
Roseanna O’Hanlon, Audit Partner roseanna.ohanlon@crowehorwath.ie | 01 488 2200
Shane McQuillan, Advisory Partner shane.mcquillan@crowehorwath.ie | 01 488 2200
John Byrne, Tax Partner john.byrne@crowehorwath.ie | 01 488 2200
Grainne Howard, Company Secretarial Manager grainne.howard@crowehorwath.ie | 01 488 2200

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