A recent legal case has concluded that private limited companies operating under Model Articles must have at least two directors.
Before the ruling, under article 7(2) of the Model Articles, it had been widely assumed that if a business had a sole director and no obligations required it to have more than one, they were permitted to make decisions by themselves.
However, this new verdict has cast doubt on that and may have wide reaching implications for your business and the way it is run.
What is the Model Article?
The Model Articles of Association is a legal document including the universal default requirements that control how a company operates.
The articles detail the internal policies and regulations that the company’s members and directors must adhere to.
Legal ruling
In the Hashmi v Lorimer-Wing case, the High Court ruled that when the required number for directors’ meetings is set at two or more, the Articles need at least two directors to make decisions for the business.
Charles Worth, Head of Business Law for ICAEW commented on the ruling:
“While the case is fact-specific, it appears to apply to all companies that adopt the relevant Model Articles unamended (or with amendments that do not address the issue).
“This is a widely unexpected decision and companies that adopted the Model Articles and have a sole director may wish to consider their position. They may wish to appoint (and retain) an additional director or amend the Articles. They may also wish to ratify past decisions of the sole director.”
How does this affect you?
There will be a wide range of potential repercussions for firms with one director using the Model Articles, meaning that some decisions made in the past could now be open to question.
Therefore, it is important to seek advice and guidance from professionals such as us as soon as possible.
We are here to help. For advice on related matters, contact our team today.