| Single
Member Companies |
| |
| Introduction
|
| As
a result of the EC Council Directive no. 89/667/EEC permitting
single member private companies with limited liability
status, "The Companies (Single Member Private Limited
Companies) Regulations 1992" was made effective in
the UK on 15 July 1992. |
| The
regulations effectively permit single member companies
in the UK and therefore amend the relevant sections of
The Companies Act 1985 and the Insolvency Act 1986. |
| The
principal areas of amendment are: |
| (1) |
Company
formation |
| (2) |
Minimum
membership for carrying on business |
| (3) |
Contracts
with sole members who are directors |
| (4) |
Company
secretarial disclosure of single member status |
| (5) |
Meetings |
| (6) |
Recording
of decisions by the sole member |
| (7) |
Registration
of single member companies |
| (8) |
Circumstances
in which a company may be wound up |
|
| |
| 1.
Formation |
| The
regulation inserts an additional subsection (3A) to section
1 of The Companies Act 1985, which effectively facilitates
incorporation of single member companies. |
| Section
1(3A) reads: |
| "Notwithstanding
subsection (1), one person may, for a lawful purpose,
by subscribing his name to a memorandum of association
and otherwise complying with the requirements of this
Act in respect of registration, form an incorporated company
being a private company limited by shares or by guarantees." |
|
| |
| 2.
Minimum membership for carrying on business |
| Under
section 24 of The Companies Act 1985, if a company carried
on business without having at least two members, for more
than six months, the company effectively lost its limited
liability status (subject to certain conditions). |
| However,
"The Companies (Single Member Private Limited Companies)
Regulations 1992", amended this section by not applying
s.24 to "a private company limited by shares or by
guarantee". |
|
| |
| 3.
Contracts with sole members who are Directors |
| The
regulations insert section 322 (B) requiring disclosure
of contracts with sole members who are also directors. |
| The
required disclosure is as follows: |
| (1) |
Subject
to subsection (2), where a private company limited by
shares or by guarantee having only one member enters into
a contract with the sole member of the company and the
sole member is also a director of the company, the company
shall, unless the contract is in writing, ensure that
the terms of the contract are either set out in a written
memorandum or are recorded in the minutes of the first
meeting of the directors of the company following the
making of the contract. |
| (2) |
Subsection
(1) shall not apply to contracts entered into in the ordinary
course of the company's business. |
| (3) |
For
the purposes of this section a sole member who is a shadow
director is treated as a director. |
| (4)
|
If
a company fails to comply with subsection (1), the company
and every officer of it who is in default is liable to
a fine. |
| (5) |
Subject
to subsection (6), nothing shall be construed as excluding
the operation of any other enactment or rule of law applying
to contracts between a company and a director of that
company. Note that if the sole member is also the sole
director, as a director, he must still declare his interest
in the contract to himself. In addition, the provisions
of section 320 of the Companies Act 1985 will need to
be considered. |
| (6) |
Failure
to comply with subsection (1) with respect to a contract
shall not affect the validity of that contract. |
| (7) |
In
section 741 of The Companies Act 1985 ("director"
and "shadow director"), in subsection (3) after
"sections 320 to 322 (substantial property transactions
involving directors)", delete "and" and
insert "section 322B (contracts with sole members
who are directors)." |
| (8) |
In
Schedule 24 to The Companies Act 1985 (punishment of offences)
after the entry relating to section 318(8) insert: |
|
| Section
of Act creating offence |
General
nature of offence |
Mode
of prosecution |
Punishment |
| "322b(4) |
Terms
of unwritten contract between sole member of a private
company limited by shares or by guarantee and the
company not set out in a written memorandum or recorded
in minutes of a directors' meeting |
Summary |
Level
5 on the standard scale" |
|
|
| |
| 4.
Company secretarial disclosure of single member status
|
| The
fact that the company becomes a single member company
or ceases to be a single member company must be stated
on the member's register. |
| The
Companies Act 1985 is amended with an additional insertion
to section 352, which reads: |
| (1) |
If
the number of members of a private company limited by
shares or by guarantee falls to one there shall upon the
occurrence of that event be entered in the company's register
of members with the name and address of the sole member
- |
| (i) |
a
statement that the company has only one member, and |
| (ii) |
the
date on which the company became a company having only
one member. |
| (2) |
If
the membership of a private company limited by shares
or by guarantee increases from one to two or more members
there shall upon the occurrence of that event be entered
in the company's register of members, with the name and
address of the person who was formerly the sole members,
with the name and address of the person who was formerly
the sole member, a statement that the company has ceased
to have only one member together with the date on which
that event occurred. |
| (3) |
If
a company makes default in complying with this section,
the company and every officer of it who is in default
is liable to a fine and, for continued contravention,
to a daily default fine." |
| In
Schedule 24 to The Companies Act 1985 (punishment of offences),
after the entry relating to section 352(5), the offences
are amended to include the following: |
|
| Section
of Act creating offence |
General
nature of offence |
Mode
of prosecution |
Punishment |
Daily
default fine |
| "352A(3) |
Company
default in complying with section 352A (statement
that company has only one member) |
Summary |
Level
2 of the standard scale |
One-tenth
of level 2 on the scale |
|
|
| |
| 5.
Meetings |
| Section
370 of The Companies Act 1985 states that the quorum for
a Single Member Company is one member present in person
or by proxy. |
|
| |
| 6.
Recording of decision by a sole member |
| Under
section 382B of The Companies Act 1985, decisions recorded
by a sole member shall be as follows: |
| (1)(i) |
Where
a private company limited by shares or by guarantee has
only one member and he takes any decision which may be
taken by the company in general meeting and which has
effect as if agreed by the company in general meeting,
he shall (unless that decision is taken by way of a written
resolution) provide the company with a written record
of that decision. |
| (ii) |
If
the sole member fails to comply with subsection (1) he
shall be liable to a fine. |
| (iii) |
Failure
by the sole member to comply with subsection (1) shall
not affect the validity of any decision referred to in
that subsection." |
| (2) |
Schedule
24 to The Companies Act 1985 (punishment of offences),
after the entry relating to section 382(5) is amended
to read: |
|
| Section
of Act creating offence |
General
nature of offence |
Mode
of prosecution |
Punishment |
| "382B(2) |
Failure
of sole member to provide the company with a written
record of decision |
Summary |
Level
2 of the standard scale |
|
|
| |
| 7.
Registration of single member companies |
| Section
680 of The Companies Act 1985 is amended to allow registration
of single member companies as a private company limited
by shares or guarantee. |
|
| |
| 8.
Circumstances in which a company may be wound up |
| Under
section 122(E) of The Insolvency Act 1986, a company may
be wound up if its members are reduced below 2. |
| The
Companies (Single Member Private Limited Companies) Regulations
1992, alters this to apply only in the case where a company
is not a private company limited by shares or by guarantee. |
|
| |
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