Articles of Association are the rules that govern how a company operates and most companies will adopt the Model Articles when they are incorporated. However, there has been some confusion about whether the Model Articles are suitable for companies with a sole director.In the recent case of Hashimi v Lorimer Wing the court held that a company should amend the Model Articles if they have a sole director. This is because the Model Articles require a minimum of two directors to make company decisions. However, in the case of Re. Active Wear, the courts decided that where a company had only ever had one director, then the Model Articles would not have to be amended (subject to some exceptions).
Sounds clear? Unfortunately, these two legal judgments muddy the waters. As a result we recommend companies with Model Articles and only one director to:
- either (a) appoint at least one more director; or (b) amend the Model Articles of the company; and
- ratify the previous decisions made by the sole director.