Documents for Business

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Introduction to this document

Memorandum of contract between company and sole shareholder

It’s common for small companies to have a sole shareholder. If your company does, one of the special rules that applies is the requirement to keep a written record of any contract that the company enters into with the sole shareholder, if they are also a director.

Special rules

Sole shareholder companies are common in small family-run businesses and sole traders who incorporate. Certain aspects of company law need to be tweaked to enable a company with just one shareholder to make the same decisions and ensure that proper records are kept. Our Sole Shareholder Checklist goes through the different requirements.

Type of contract

If a company enters into a contract with its sole shareholder who is also its director, the Companies Act 2006 requires a written record to be kept of its terms. This helps to keep the identity of the company separate from that of its sole shareholder and to ensure that the company is not taken advantage of by a person with this much control over it. The requirement is fulfilled if the contract is in writing. Many such contracts are not in writing, however, in which case the company must record its terms either in a written memorandum or in the minutes of the first board meeting held after the contract was entered into. This model sets out wording appropriate for making a record of any such contracts.