25 August 2022 by

Model Articles not suitable for sole director companies

What are the Model Articles?

Every company must have a set of ‘articles of association’, which sets out the rules governing the company and forms a key part of its constitution.

The Model Articles are a standard set of articles of association which a company can choose to adopt. Many companies adopt these Model Articles on incorporation. Even where companies adopt bespoke articles of association, they often include parts of the Model Articles.

The position on model articles before Hashmi v Lorimer-Wing

The general understanding among lawyers was that, if a company has adopted the Model Articles and only has one director, then that sole director has the power to make decisions on behalf of the company. This seemed to be the case under Model Article 7(2).

Model Article 11(2) provides that the ‘quorum’ for a directors’ meeting must never be less than two.  A quorum is the minimum number of directors required to attend a directors’ meeting, in order for decisions made at the meeting to be valid.

However, for many years, it was assumed that this Model Article 7(2) overrides Model Article 11(2).

This led to the understanding that a company that has adopted the Model Articles can make decisions through a sole director.  No doubt, there are thousands of companies across the country that are set up in this way.

Findings for model articles in Hashmi v Lorimer-Wing

In this case, due to a series of events, Mr Lorimer-Wing was left as the sole director of the company. The case was brought to the courts by a shareholder of the company, questioning the legality and validity of the decisions made by the sole director.

The court has found that the Model Articles are clear and work together. If a company has adopted Model Article 11(2) unamended, then this will overrule Model Article 7(2).  The implication here is that, if a company has adopted the Model Articles and only has one director, then that director cannot make any decisions for the company, other than a decision to appoint additional directors.

Next steps for sole directors with model articles

If you are the sole director of a company, we can assist you in reviewing and amending your company’s articles of association. One option may be to appoint another director if this works for your company. Alternatively, we can prepare the necessary documentation for the company’s shareholders to alter the articles of association and to ratify all decisions made by a sole director prior to the adoption of new articles.

Articles of association must be carefully drafted to ensure they are working for you and your company in the way you expect. If you would like us to review your current articles, please contact Tim Lucas.

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