Being A Sole Director – Having The Authority To Act

28th May 2024

There are many elements to a sole director company that have to be considered some are more obvious than others such as logistics and growing the business. However, what many do not realise is that a company needs to be prepared or “set up” for a sole director.

A director’s powers and authority stems from legislation, the Companies Act 2006 being the most relevant legislation, and the articles of association of the company in question (see our previous blog post on articles of association here) which acts as the company’s constitution.

There are areas of the articles of association that need consideration where there is only one director of the company.

One area may be how a company executes documents/binds itself.

Another involves decision making. A board meeting is often required for decisions and authorisations relating to key parts of a company’s business such as borrowing money. A board meeting involves more than one person, and a quorum is often defined in the articles as two directors or more.

The model articles, which are the template that many companies do not alter when they are incorporated, requires a quorum of two directors but also allows for sole directors to make decisions – usually via sole director resolutions. However, the case of Hashmi v Lorimer-Wing (also known as Re Fore Fitness Investments Holdings Ltd) relating to whether a sole director had the power or authority on their own as the sole director led to lenders and banks requiring a change of articles before they would lend to sole director companies as it would affect their ability to recover monies that they have lent.  

The subsequent case of Re Active Wear Limited (in Administration) reversed the decision of the previous case but bearing in mind that interpretations of the law can change, it is worth checking your articles of association if you are a sole director as the contents could be written for companies with more than one director.

Updating and ensuring the articles reflect the structure you have in place rather than a hypothetical one can help your company continue to operate smoothly (and is most certainly worth doing if you are looking to sell the company at some point in the future).

The corporate / commercial department at BTTJ advises businesses across all sectors, from long-established companies to enterprises that are just starting up.  Our team consists of commercial and corporate law solicitors with extensive expertise – and the experience required to adopt the right strategy in every situation. Please contact us for further advice.

Article written by Corporate Commercial Solicitor Kyle Smith.