It is well known that the new Companies Act introduced the concept of a “one-man” company, that is, a private or a public company formed by one man, or one woman. According to Minister Phillip Paulwell, one-man companies account for approximately 25% of the companies formed under the new Act.
One-man companies represent a significant departure from the former company regime under which at least two persons had to subscribe to the Memorandum and Articles of Association to form a private company and at least seven persons had to form a public company. The fact was though even in the old company law regime, that ‘one man companies’ were quite common in the sense that one person would form a company holding, say, 99 of the 100 shares the company was authorized to issue, and, a nominee of that same person would hold the other 1 share. The new Companies Act has therefore given legal recognition to what was, in fact, a reality under the old regime.
Now that one-man companies are a reality and a private company may have one shareholder who also happens to be the one director, individuals can enjoy the advantage of using a corporate vehicle to carry on business as a separate legal entity. The one-man company also enjoys perpetual existence because if the sole director/shareholder dies, the new Companies Act provides that the personal representative of the deceased shareholder becomes a member of the company, so that the company will not ‘die’ as well. And, if the sole director/shareholder becomes bankrupt, the Trustee in Bankruptcy is deemed to be a member of the company so that there is someone to carry on the business until is taken over by another person or other persons, or, is wound up.
However, from a practical point of view, how can one man who is the sole shareholder and director of a company convene and hold a general meeting to make certain corporate decisions that must be taken in general meeting, or, hold a board meeting to pass a resolution?
It appears that the meaning of “meeting” will have to be redefined in this context in order to make one-man companies compliant with the new Act.
The UK Companies Act, 1985 addresses this challenge by recognizing the concept of the “one–person meeting”. The UK provision provides that where the one-man company passes a resolution which has to taken by the company in general meeting, the decision must take the form of a written resolution or the single member must produce to the company some written record of this decision. Failure to comply is punishable by a fine, but the failure to record does not invalidate the decision. The UK provision brings some order to the operation of one-man companies because it may compel one-man companies to keep a record of corporate decisions for the benefit of existing and prospective creditors as well as for prospective shareholders and directors who may later join the company
Consider for example, the requirement that a director must make a declaration of his interest in a material contract that the company proposes to enter into, a requirement that applies to each director of a private, as well as of a public company. It would seem absurd that the sole director and shareholder of a company that is going to enter into a contract with another company in which he has an interest should have to declare his interest. In a 1995 UK case where this apparent absurdity came up for consideration by the court, the court said that in legalizing the one man company, the legislature could not have intended to exclude it from the operation of the company law regime and said further:
“Two different situations may arise. The sole director may hold a meeting attended by himself alone or he may hold a meeting attended by someone else and himself, usually the secretary. When holding the meeting on his own he must still make the declaration to himself……….., though it may not have to be that the declaration has to be read out loud, he must record that he made the declaration in the minutes. The court may well find it difficult to accept that the declaration has been made if it was not so recorded. If the meeting is attended by any one else, the declaration must be made out loud and in the hearing of those attending, and again should be recorded. In this case if it is proved that the declaration was made, the fact that the minutes do not make the record of the declaration will not preclude proof of its making. In either situation the language of the section must be given full effect: there must be a declaration of the interest”.
In the absence of such an express provision in our own Companies Act are one-man companies excluded from the new company law regime that they have been expressly written into, or, are they merely written into the new Act without adequate guidance as to how to operate in this new regime?
The answer to the first question must be ‘no’. One-man companies and their directors are obliged to comply with the obligations to duly convene and to pass resolutions and their directors are obliged to make such disclosures as to their interests in contracts and in shares in a parent or subsidiary as they are obliged to make under the law. The case mentioned above supports this view, and, of course, leads away from absurdity.
As to whether one-man companies have been provided with adequate guidance under the new regime, the answer is probably ‘no’ and our legislators should look to amend the Act to introduce a provision that expressly imposes a duty on a single member that requires him or her to make a record of resolutions which must be passed by members in general meeting and make and keep a record of declarations of interests.
Janet E. Morrison
Attorney-at-Law and Partner
DunnCox,
48 Duke Street, Kingston
Janet.Morgan@dunncox.com