The model articles are the default articles of association for limited companies incorporated on or after 1 October 2009, and are automatically incorporated into a company’s amended articles of association if the amended articles do not cover a point covered by the model articles.
Despite the model articles being drafted with small businesses in mind, there is some controversy as to whether companies with a sole director can make valid decisions under the model articles.
Model article 7(2)(a) states that if a company only has one director and no provision of the articles requires it to have more than one director, then that director may make decisions alone.
Model article 11(2) states that the quorum for a directors’ meeting is two. If a quorum is not present, the director(s) cannot make valid decisions (except as specifically allowed by the articles).
These articles seem to contradict each other as one states that a sole director may make a decision alone, and the other requires there to be two directors at a board meeting for a valid decision to be made.
Before 2022, it was generally accepted that model article 11(2) only applied when there was more than one director. Therefore, if there was a sole director, they would be able to make decisions in accordance with model article 7(2)(a) without the quorum requirement under model article 11(2) affecting the validity of that decision.
In 2022, in the case of Re Fore Fitness Investments Holdings Ltd, it was held that a sole director could not make valid decisions under the model articles. Model article 7(2)(a) only allows a sole director to take decisions alone if no other provision of the articles requires the company to have more than one director, and model article 11(2) requires there to be two directors for a board meeting to be quorate. The model articles must consequently be amended to permit a sole director to make valid decisions.
Following this decision, a company with a sole director operating under the model articles has 2 options:
1. Model article 11(3) states that if the number of directors is less than two, the only valid decision the sole director can take is to appoint a further director or call a general meeting to propose that the shareholders appoint a further director. The sole director may therefore appoint a second director meaning that, provided at least two directors attend any board meetings, the quorum requirement under model article 11(2) is satisfied.
2. The sole director could propose that the shareholders pass a special resolution to amend the model articles to allow the sole director to make valid decisions (e.g. to amend model article 11(2) to allow for a quorum of one director).
For help appointing a second director or amending your company’s articles of association, or advice on whether previous decisions made by a sole director were valid, please contact a member of our corporate team.