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Companies act 2014 Impact & implications for irish charities


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Impact and implications for Irish charities of the Companies Act 2014, as presented to The Wheel.

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Companies act 2014 Impact & implications for irish charities

  1. 1. 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
  2. 2. 2© 2015 Crowe Horwath 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
  3. 3. 3© 2015 Crowe Horwath 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
  4. 4. 4© 2015 Crowe Horwath Audit | Tax | AdvisoryAudit | Tax | Advisory presented by Gráinne Howard The Companies Act 2014
  5. 5. 5© 2015 Crowe Horwath 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
  6. 6. 6© 2015 Crowe Horwath 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
  7. 7. 7© 2015 Crowe Horwath Audit | Tax | AdvisoryAudit | Tax | Advisory presented by Gráinne Howard New Company Types
  8. 8. 8© 2015 Crowe Horwath Contents New Company Types Company Limited by Guarantee Name Change Conversion Process Revenue Commissioners
  9. 9. 9© 2015 Crowe Horwath 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).
  10. 10. 10© 2015 Crowe Horwath 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.
  11. 11. 11© 2015 Crowe Horwath Prior to name change ROTHA TEORANTA (THE WHEEL LIMITED) Name Change
  12. 12. 12© 2015 Crowe Horwath Following name change ROTHA CUIDEACHTA FAOI THEORAINN RÁTHAÍOCHTA (THE WHEEL COMPANY LIMITED BY GUARANTEE) Name Change (Cont’d)
  13. 13. 13© 2015 Crowe Horwath 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
  14. 14. 14© 2015 Crowe Horwath 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.
  15. 15. 15© 2015 Crowe Horwath 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
  16. 16. 16© 2015 Crowe Horwath 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
  17. 17. 17© 2015 Crowe Horwath Audit | Tax | AdvisoryAudit | Tax | Advisory presented by Gráinne Howard Companies Registration Office
  18. 18. 18© 2015 Crowe Horwath Contents New Forms Revised B1 Form Filing Financial Statements Company Contacts Section 39 Company Officers must be over 18
  19. 19. 19© 2015 Crowe Horwath Series of new/revised forms will be introduced:- New/Revised Forms
  20. 20. 20© 2015 Crowe Horwath  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)
  21. 21. 21© 2015 Crowe Horwath  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
  22. 22. 22© 2015 Crowe Horwath  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
  23. 23. 23© 2015 Crowe Horwath  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
  24. 24. 24© 2015 Crowe Horwath  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
  25. 25. 25© 2015 Crowe Horwath Audit | Tax | AdvisoryAudit | Tax | Advisory presented by Albert Farrell Directors Duties and Role of Company Secretary
  26. 26. 26© 2015 Crowe Horwath 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
  27. 27. 27© 2015 Crowe Horwath 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.
  28. 28. 28© 2015 Crowe Horwath 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.
  29. 29. 29© 2015 Crowe Horwath 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
  30. 30. 30© 2015 Crowe Horwath 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
  31. 31. 31© 2015 Crowe Horwath 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 imprisonment for a term not 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 imprisonment for a term not 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.
  32. 32. 32© 2015 Crowe Horwath 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)).
  33. 33. 33© 2015 Crowe Horwath 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)).
  34. 34. 34© 2015 Crowe Horwath Audit | Tax | AdvisoryAudit | Tax | Advisory presented by Roseanna O’Hanlon Audit and Financial Statements & The Charities Act 2009-SORP
  35. 35. 35© 2015 Crowe Horwath 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
  36. 36. 36© 2015 Crowe Horwath 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
  37. 37. 37© 2015 Crowe Horwath 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.
  38. 38. 38© 2015 Crowe Horwath 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.
  39. 39. 39© 2015 Crowe Horwath 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.
  40. 40. 40© 2015 Crowe Horwath SORP (statement of recommended practice)
  41. 41. 41© 2015 Crowe Horwath 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?
  42. 42. 42© 2015 Crowe Horwath 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:
  43. 43. 43© 2015 Crowe Horwath Key funds in a charity Unrestricted Funds Designated Funds General Fund Restricted Funds Restricted Funds Endowment Funds
  44. 44. 44© 2015 Crowe Horwath 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.
  45. 45. 45© 2015 Crowe Horwath 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)
  46. 46. 46© 2015 Crowe Horwath 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
  47. 47. 47© 2015 Crowe Horwath Questions?
  48. 48. 48© 2015 Crowe Horwath Bastow Charleton Member Crowe Horwath International Marine House Clanwilliam Court Dublin 2 Ireland 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 | 01 488 2200 Roseanna O’Hanlon, Audit Partner | 01 488 2200 Shane McQuillan, Advisory Partner | 01 488 2200 John Byrne, Tax Partner | 01 488 2200 Grainne Howard, Company Secretarial Manager | 01 488 2200