A common question we get asked is does the existing constitution of a company (previously Memorandum & Articles of Association), need to be updated if the company decides to become a single director company?
We are seeing an increase in companies choosing a sole director & sole shareholder company. The Companies Act 2014 (the “Act”) introduced a welcomed provision that a Company Limited by Shares (“LTD”) could just have a single director. All other company types must still have two directors.
Companies that wish to set up or change to a single director company must have a separate Company Secretary who is not the sole Director. This removes the requirement to have someone, who may not be involved in the day to day running of the company, act as a director and to take on that legal responsibility.
The Company Secretary can either be an individual or a company. This allows a company to engage a corporate service firm or professional company secretary to act as Secretary if the sole director would prefer not to involve anyone else.
Change the Constitution
If a company was formed before the commencement of the Act in June 2015 and it did not opt to update its constitution during the transition period or since, then it should take the opportunity now to adopt a new constitution. We recommend this as the constitution is referring to the old legislation. The Act is made up of mandatory and optional provisions and where the current constitution conflicts with any mandatory provisions of the Act, the mandatory provisions will override the constitution. This may result in confusion and the need to check both the constitution and the Act before proceeding to make any changes.
An example of this is where the company has not updated its constitution and wishes to change the company from a multi-director company to a sole director company. The company’s current constitution may say that the company needs a minimum of 2 directors, but the Act has a mandatory provision in Section 128 that “A company shall have at least one director.” This mandatory provision will overrule any provision in the old constitution and will allow for the company to change to a single director company without the need to update the constitution.
The Act also includes other provisions regarding sole directors including the quorum of directors meetings is one and the passing of written resolutions instead of having to hold a physical meeting of the sole director. For more information on what should be included in a company constitution click here.
Make a Will
If you act as the sole director and sole shareholder, it is important that you put a will in place to deal with the transmission of your shares in the event of your death. The constitution should also contain a provision allowing for the personal representatives to appoint a director if the sole director passes away. This should help the company continue to operate at a difficult time and not lead to potential issues.
How can we help?
As mentioned above, although the company is not required to update it constitution for the purpose of changing to a single Director company, it is advised that if that constitution has not already been brought up to date with the Act then it should do so now. If you need any assistance whatsoever with looking after this, please feel free to contact us me at amy@clscs.ie or 059 9186776.
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