Mike Barrington writes for Wealth Briefing on sole company directors
For many family or founder-run businesses, decision-making at board level can be concentrated in a small circle of individuals who have grown the business from its foundation. Corporate governance can be punctuated by informality, with the company’s constitutional documents acting more as a general guide, rather than being followed to the letter.
Mike Barrington, Senior Associate in our Corporate team, explains in an article for Wealth Briefing that there are good reasons why operating the board in line with its constitutional documents is attractive; not least for directors evidencing compliance with their statutory duties, and making the business more attractive for prospective investors or purchasers.
He continues: "A less obvious reason is to avoid the "sole director trap," for companies which have adopted the “Model Articles of Association.” The Model Articles are a template set of constitutional rules which many companies adopt, which govern, amongst other things, board decision-making."
A number of recent court rulings raise questions about companies that have just one director while also relying on these "Model Articles Of Association". Mike explains that in some instances, a sole director company with modified Model Articles could be prevented from making decisions on behalf of the company other than appointing new directors. He continues: "[...] being prevented from making those decisions could harm a company’s commercial success, and could certainly be a red flag to potential investors and partners."
Mike goes on to provide advice to business owners on how they can avoid falling foul of this, for example by changing or updating their company articles.
Read the full piece in Wealth Briefing here.
