Guarantee Companies – OMCs and Charities
Guarantee companies are the second most popular form of company in Ireland. They are usually used where the company in question is not trading for profit. Traditionally, this has meant that three kinds of operations incorporate as CLGs: charities, management companies and sports clubs.
There is no special body of company law which applies only to management companies. The MUD Act 2011 – Section 1(1) – states that owners’ management companies (“OMCs”) are to be companies which are registered under the Companies Acts.
Most OMCs are incorporated as public companies limited by guarantee not having a share capital (CLGs). Only a minority have been incorporated as private companies limited by shares.
So what happens to OMCs and charities when the Companies ACt 2014 comes into operation?
Part 18 of the Companies Act 2014 deals with Guarantee Companies. The very definition of a “CLG” – Section 1172 – is that it does not have a share capital and that it is a company where the liability of its members is limited by the constitution of the company, to such an amount as the members respectively undertake to contribute in the event of a winding up. CLGs are public, not private, companies (which means, amongst other things, that they must have at least 7 members, and must hold an AGM).
If a Guarantee Company currently has a share capital, it will be considered a private company, and will be considered to be a DAC, at the end of the transition period.
The Act states that, in general, Parts 1 to 14 of the Companies Act 2014 apply to CLGs. Certain provisions in Parts 1 to 14 are disapplied – for example, the doctrine of ultra vires is not abolished for CLGs because they retain their objects clause, the two director minimum requirement remains, and so on.
- The CLG retains the two document constitution (memorandum and articles of association). Its objects clause is retained.
- The memorandum must state that the liability of the members is limited by the constitution of the company, to such an amount as the members respectively undertake to contribute in the event of a winding up.
- The obligation to have two directors is retained
- Any document referring to any former enactment relating to companies is to now be read as referring to the corresponding enactment of the Companies Act 2014 (Section 5)