Sole Directors of companies that have adopted Model Articles, may find they are unable to make valid decisions, due to a recent High Court ruling.
If a business with a single Director has set their company up themselves using the model articles supplied by Companies House, then technically they are not able to meet the criteria to have directors’ meetings which are needed for a number of resolutions and decisions, as the model articles now require at least 2 directors.
Single Director companies are being strongly advised to review their Articles of Association as they may need to have their articles changed.
What are Articles of Association
The Articles of Association (AoA) are essentially a set of rules that company officers must follow when running their business. The document defines the purpose of a company and specifies the regulations for its operation.
The Articles of Association can be bespoke, or a company can use the standard default “Model Articles“. This means that unless a company is set up with bespoke articles, the model articles will automatically apply.
The AoA will often contain (amongst other matters) the quorum – which is the number of directors required to be present at a meeting for the proceedings at the meeting to be valid.
How will the recent court ruling affect companies with a sole Director?
If a company was set up with just one director and used the default Model Articles of Association, this may mean that these companies need to check that any recent decisions or actions are valid.
The types of decisions that may not be valid include things like being able to take out a loan, or being unable to sell or buy a property because under the Model Articles, the sole Director does not have the authority to make these decisions.
What are the solutions?
There are a couple of different solutions if you are a sole Director faced with this scenario.
Steps may need to be taken to ensure that any previous decisions that were made under the Model Articles are checked and ratified.
If you wish to remain as a Sole Director, it may be necessary to amend the bespoke articles to outline that the Sole Director constitutes a quorum, and can make decisions on behalf of the company in order to ensure any decisions made in the future are valid.
How can Blue Spire help?
If you are concerned there may be an issue or need advice about bespoke or Model Articles, please do not hesitate to contact us and we can assist further.