A limit on the number of Irish directorships which can be held without the permission of the Registrar of Companies is among proposals contained in draft legislation aimed at curbing Irish registered non-resident companies (IRNRs).

The proposed changes to company law would limit to 25 the number of directorships which can be held without special permission. The proposals, if passed into law, would have serious implications for company formation businesses.

Details of the proposed changes were supplied by the Department of Enterprise, Trade and Employment on foot of a Freedom of Information request. It is understood the changes are unlikely to be introduced before the end of the year.

The proposals have been tabled because of concerns about the activities of some IRNRs which have been involved in fraud, money laundering and other illegal activity. They have been damaging the reputation of Ireland internationally particularly the standing of the International Financial Services Centre.

Under the proposals, every company registered in Ireland will have at least one director who is normally habitually resident in the European Union. Existing companies are to be given 12 months to satisfy the criteria from the time of enactment of the proposals.

Any company which fails to comply with the new requirements will be guilty of an offence, as will officers of the company. The offence would make them subject to a fine or imprisonment. The Registrar of Companies would prosecute such offences.

Persons who already hold 25 directorships may be allowed by the registrar to take up fresh directorships if the can satisfy certain criteria. The directorships in excess must be with: an Irish registered plc; a related company, i.e. part of a group; a company which operates in a regulated sector which is subject to authorisations (e.g. financial or insurance companies); a company which holds a certificate to trade in the Irish Financial Services Centre or the Shannon Free Airport Development zone; or "a company which has its central administration in, or otherwise has a real and continuous link with, the State".

Authorisation must be received from the registrar before the appointment as director is made, according to the draft proposals. A person who acts as a director on more than 25 companies without authorisation, shall be guilty of an offence punishable by way of a fine or imprisonment.

New powers may also be given to the Registrar of Companies as part of the move against IRNRs. The registrar may be empowered to send by post a registered letter to a company demanding that outstanding annual returns be filed within one month.

Failure to do so can lead to the company's name being published in Iris Oifigiuil, with a view to striking the name off the register. If after one month of the publication of the company's name the files have still not been filed, the registrar may strike the company off the register and the company will be dissolved. Notice of this fact would also be published in the journal.

"The liability, if any, of every director, officer and member of the company shall continue and may be enforced as if the company had not been dissolved," according to the draft proposals.

Separate changes proposed for the money laundering provisions of the Criminal Justice Act, 1994, would impose a "know your client" obligation on company formation businesses, obliging them to declare the identity of a company's beneficial owner. The third prong of the Government's move against IRNRs is changes in the taxation legislation which would bring the companies under the tax net.