Can a company have only one director? Model articles, quorum and how to fix it

What if you are the only director of your limited company? Can you validly make decisions on its behalf, such as taking out a mortgage in the company's name? If your company uses the model articles of association, the short answer is no, not as the articles stand, because the model articles require at least two directors to form a quorum. Below I explain what the articles actually say, why that affects you in practice, particularly if you borrow through the company, and what needs to be done for a sole director's decisions to be valid.

What are articles of association?

In short, the articles of association are the bylaws or rules that dictate how a company should be run. For example, they dictate how decisions are to be made and the kind of process that needs to be followed.

There are two main kinds of articles of association:

• Model articles, which are the standard set typically provided by Companies House.
• Bespoke articles, which vary from company to company and are tailored to that company's needs, usually because a corporate solicitor has drafted them for a specific situation.

Typically, if you have not instructed a corporate solicitor to draft bespoke articles of association, it is likely that your company has the model articles. The distinction matters here because the model articles were not written with a one-person company in mind, whereas bespoke articles can deal with it directly. If you are not sure which kind your company has, see how to find your articles of association on Companies House.

For the rest of this article, assume your company has the model articles and was registered or incorporated after 2009.

Model articles and sole directors

Under these model articles, is it possible to make decisions with just one director? In short, no. The model articles were written with a board of several directors in mind, and the reason a sole director runs into difficulty is in the way they deal with directors' meetings. You can read the model articles for yourself on the UK government's website, and the provision that matters is set out below.

Model Article 11: quorum for directors

The most important provision for a sole director is Model Article 11, which deals with the quorum for directors' meetings. Article 11, paragraph 2, states that the quorum for a directors' meeting may be fixed from time to time, but it must never be less than two.

That single line is the source of the problem. The directors can decide between themselves what the quorum should be, and they can change it from time to time, but they cannot set it below two. If the company only has one director, the quorum can never be reached, however the director tries to organise the meeting.

What is a quorum and why does it matter?

A quorum is when there are enough directors present at a directors' meeting for a decision to be validly made.

• If there are not sufficient directors present, in this case at least two, then a quorum is not present and decisions cannot be made.
• If there are enough directors present, at least two, then there is a quorum and decisions can be made.

The reason for having a quorum is quite obvious when you think about it. Say you run a limited company alongside three other directors. If important decisions need to be made, you would want there to be a meeting of the directors, with enough of them present for the decision to be validly made. You would not want just one director to take decisions on behalf of the entire company without consulting anyone else. The quorum rule protects the other directors and makes sure that decisions taken in the company's name are genuinely the board's decisions. In a company with several directors, that is exactly how it should work.

The difficulty is that the model articles apply the same rule to a company that has only ever had one director, where there is nobody else to consult.

Sole director companies and lenders

This is an obvious issue for single-director companies. In my practice I have a lot of clients who use separate limited companies, of which they are the sole director, to buy properties. They want the limited company they own to be the legal owner of the property they are investing in.

Each company is a simple vehicle with one director, set up to hold one investment. The problem arises with the mortgage lender. The bank will see that the client is the sole director of the company and take the view that, under the model articles, they cannot validly take decisions such as entering into the loan agreement for the mortgage. The lender wants to know that the company's decision to borrow is valid, and the model articles say it is not, because one director cannot form a quorum.

The same logic applies to any significant decision a sole director company needs to take, not just borrowing. Until the articles are changed, there is a question mark over whether the decision was validly made.

How to fix the sole director quorum issue

In short, you need to amend your articles of association. You alter Article 11, for example, and state that if for the time being the company only has one director, then one director will be sufficient to form a quorum. Once that wording is in the articles, decisions can validly be made by just one director, and a lender looking at the company's articles can see that the borrowing decision is valid. The wording also leaves the ordinary quorum rule in place for the future: if the company later appoints further directors, the normal requirement for more than one director applies again.

The change is made in the same way as any other alteration of the articles. For a step-by-step walkthrough written specifically for a sole director and shareholder dealing with a lender, see sole director limited company: amending your articles for lender requirements. For the general procedure, see how to amend articles of association.

Next steps

If you are the only director of a company on the model articles, check Article 11 of your articles now rather than when a lender raises it. If the quorum is fixed at two, amend the articles so that one director is sufficient while the company has only one director. If you are unsure whether your company has the model articles or bespoke ones, or the amendment needs to be done quickly to keep a purchase on track, speak to a corporate solicitor.