Why sole director companies should check articles of association
A recent case has highlighted the importance of ensuring a company is incorporated with carefully drafted articles of association, if there is only one director.
All limited companies must have articles of association, which set the rules company officers must follow. However, in the High Court decision of Re Fore Fitness Investments Holdings Ltd (2022),
the judge commented that the ‘model’ articles – the standard default articles – cannot be used in an unmodified form if a company only has one director.
The implication of this is that a company which has adopted the model articles must have at least two directors for any decisions taken by a director to be valid and binding. If it is operating with one director and has adopted the model articles, any decisions taken by the director are technically invalid and non-binding, which could potentially have ramifications on key decisions or contracts.
What are the model articles?
A company’s articles of association are effectively its constitution. When a company is registered, the default position will be for it to have the model articles (a standardised constitution set out in the Companies Act 2006) unless it specifically adopts a bespoke set of articles, tailored to that company.
How can I check?
Anyone can view a company’s articles of association online by visiting Companies House – GOV. UK (www.gov.uk) – if it has been incorporated in England or Wales, and its adopted articles of
association form a part of its public record. This record will either state ‘model articles adopted’ or a copy of its bespoke articles will be available to view, free of charge.
What should I do?
If you are looking to register a new or existing company and there will only be one director (or might be in the future), it would be advisable to ensure the company is incorporated with carefully
drafted bespoke articles of association which permit this. If the company is already incorporated with model articles and has just one director, you should review the articles of association to ensure no amendments have been made. If none have, consider either appointing an additional director or, preferably, amending the articles to give the company flexibility to operate with a sole
director. It would also be advisable to carry out a review of historic decisions taken by the sole director to ensure they are not potentially void.
Should you need any advice on this matter, our corporate & commercial team would be happy to help.Email Helen
Helen is a solicitor in our corporate & commercial team, advising clients on their terms and conditions of business, as well as general commercial issues. She also has experience in mergers and acquisitions, disposals and company reorganisations.