Designated Activity Company (DAC) — A Company with Designated Activity in Ireland

Key Characteristics:

1. Designated Activity: A Designated Activity Company (DAC) is a company that must strictly engage in the activities specified in its Constitution. This distinguishes it from other types of companies, such as LTD, where the scope of activities can be more flexible. A DAC is obligated to perform only the activities listed in its governing documents and cannot operate outside those parameters.

2. Liability: Like an LTD, shareholders in a DAC have limited liability, meaning their obligations are limited to the amount they invested in the company’s shares. In the event of financial difficulties, shareholders’ personal assets are protected.

3. Types of DAC:

• DAC Limited by Shares: In this form, shareholders own shares in the company, and their liability is limited to their shareholding.

• DAC Limited by Guarantee: This form is typically used by non-profit organizations. Participants do not own shares, but they guarantee the payment of a specified amount in the event of the company’s liquidation.

4. Minimum Shareholder Requirements: A DAC requires at least one shareholder to be established. Shareholders must regularly be informed about the company’s activities.

5. Minimum Director Requirements: A DAC must have at least two directors. Unlike an LTD, which can have a single director, a DAC is required to have two directors, which is a key distinction. One of the directors must be an Irish resident, or the company must provide a bond of €25,000 if there is no resident director.

6. Incorporation Documents: Like an LTD, the DAC’s governing document is the Constitution, which sets out the company’s rules. However, in a DAC, the Constitution specifically defines the company’s goals and the activities it is permitted to undertake. Unlike an LTD, a DAC does not have the freedom to change its activities without amending its Constitution.

7. Financial Reporting and Taxation: A DAC is required to submit annual reports and financial statements to the Companies Registration Office (CRO). Like other limited companies, DACs pay a corporate tax of 12.5% on trading income and 25% on non-trading or non-commercial income in Ireland.

When to Choose a DAC:

1. Financial Institutions and Insurance Companies: Companies operating in highly regulated sectors such as finance and insurance often use the DAC structure because their activities must be limited to specific types of services.

2. Companies Issuing Debt Securities: DACs are often chosen by companies issuing debt securities or bonds, as the law requires such companies to adhere to strict operational boundaries.

3. Non-profit Organizations and Charitable Trusts: While Companies Limited by Guarantee (CLG) are more commonly used for non-profits in Ireland, a DAC can also be suitable in cases where the organization’s activities need to be limited to specific goals.

4. Project-Specific Companies: DACs are commonly used for projects requiring clearly defined objectives, such as investment or infrastructure projects.

Advantages of Registering a DAC in Ireland:

1. Limited Shareholder Liability: As with an LTD, DAC shareholders are only liable up to the amount of their investment, which protects their personal assets.

2. Clear Objectives and Activities: A DAC is the best choice for companies that need to adhere strictly to pre-established activities. This helps shareholders and stakeholders clearly understand the company’s objectives.

3. Tax Benefits: Ireland offers favorable corporate tax rates (12.5% on trading profits), making the DAC structure appealing for companies operating in specific sectors.

Disadvantages of a DAC:

1. Limited Activities: The main disadvantage of a DAC is that the company is restricted to the activities listed in its Constitution. If the company wants to engage in additional activities, it must amend its governing documents.

2. Management and Director Requirements: A DAC must have at least two directors, which can be an additional administrative burden compared to an LTD, where only one director is required.

Suitable For:

• Financial and insurance companies that need to adhere to strict regulatory requirements.

• Non-profit organizations that require a clear definition of their activities.

• Companies issuing debt instruments or other securities that need a fixed activity structure.

Example:

• Insurance Company: Insurance companies often opt for the DAC structure because their operations are strictly regulated by law, and it is necessary to clearly limit the types of services they provide.

Thus, a Designated Activity Company (DAC) is an appropriate structure for businesses that need to limit their activities, whether for regulatory compliance or to fulfill specific objectives.