How many directors should a CIC or other company have?
Julian Lomas
Over the years we have worked with many people wanting to set up a CIC or another form of non-profit company as the vehicle for their social enterprise idea. Understandably these founders want to retain control of their company and ideas and we are frequently asked what is the minimum number of Directors that a company must have.
The short answer is one, but of course it is more complicated and nuanced than that.
It is certainly true that the Companies Act 2006 requires only that a company must have at least one Director. Moreover, the model articles for companies (specified in law) do not stipulate a number of Directors, nor do the model articles for CICs published by the CIC Regulator.
However, all these model articles include provisions specifying a quorum of two for Directors’ meetings (and that if the number of Directors falls below that then the Directors must not take any decisions except to appoint new Directors or make arrangements for the members/shareholders to do so). In a recent High Court case (Hashmi v Lorimer-Wing), the court found that this quorum requirement means that companies that have not amended the quorum requirement in their articles must have at least two Directors.
We strongly recommend that any company with unamended model articles should address this issue now (which means appointing at least a second Director, before possibly changing the articles to reduce the quorum requirement).
However, it is not good governance in a non-profit to have too few Directors. It limits the diversity of backgrounds and viewpoints that contribute to decision making. It places the company at risk if any Directors leave (for whatever reason). It risks problems of dominance in governance. And, it could be a barrier to fundraising (because grant funders usually require there to be at least three unrelated Directors and/or for cheques to be authorised by at least two people..
Our advice, therefore, it that even small non-profits should look to appoint a diverse Board of Directors (at least 3 and ideally at least 5), to comply with the law, funding requirements and good governance practice.
To find out more about the governance support and training we offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.