Strict procedures must be followed if you want to remove a director from a limited company. To ensure compliance with contractual agreements and company law, and to avoid the potential for legal claims, you must ensure that any termination of a director’s appointment is just. Below, we discuss the different options available to you and the steps you need to follow to remove a director.
The easiest solution, which we recommend in the first instance, is to broach the subject of voluntary resignation with the director and offer a severance package. Otherwise, you can remove a director in one of three ways:
- under the articles of association
- using the statutory procedure in the Companies Act 2006
- disqualification by an authorised third party
Unless the removal of a director is by disqualification order from an authorised body, you must refer to your company’s articles of association and shareholders’ agreement (if applicable) before making a decision.
1. Remove a director under the articles of association
Under the Model articles of association, the board of directors or a majority of the members can serve written notice to remove a director if:
- that person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from acting as a director
- a bankruptcy order is made against that person
- composition is made with that person’s creditors generally in satisfaction of that person’s debts
- a registered medical practitioner who is treating that person gives a written opinion to the company that the director has become physically incapable of carrying out the role and he or she may remain so for more than three months
- notification is received by the company from the director stating their resignation from office, and that such resignation has taken effect in accordance with its terms
In such instances, there is no need to make a decision on the matter. The law requires the director to be immediately removed from office. If a company has only one director, a new director must be appointed as soon as possible – ideally before the current director is officially removed from the company register.
2. Remove a director by ordinary resolution (the statutory procedure)
Where the articles do not cover the cause for removal, you may call a general meeting of the members (shareholders or guarantors) to vote on the matter and pass an ordinary resolution. This statutory procedure, prescribed by the Companies Act 2006, requires a ‘simple majority’ vote (over 50%). It is not possible to use a written resolution to remove a director.
The member who proposes the dismissal must give the company ‘Special Notice’ of a resolution to remove a director at least 28 days prior to the meeting at which the director may be removed. The director in question should be given a copy of the notice. They will be permitted to attend the meeting and make representations.
Minutes of the meeting should be taken. A copy of both the minutes and ordinary resolution must be kept at the company’s registered office or SAIL address. The company’s statutory register of directors should be updated to reflect the dismissal.
Companies House must also be notified of a director’s removal within 14 days of the resolution being passed. You can do this online using Form TM01 or via Rapid Formations’ free Client Admin Portal.
3. Director disqualification by an authorised body
Directors can be disqualified if they fail to maintain their legal responsibilities and their conduct is deemed ‘unfit’ by any of the following bodies:
- The Insolvency Service
- the Courts
- Companies House
- the Competition and Markets Authority (CMA)
- a company insolvency partner
The Insolvency Service offers the following examples of unfit behaviour that often result in director disqualification:
- continuing to trade to the detriment of creditors at a time when the company was unable to pay its debts
- failing to keep proper accounting records
- failing to prepare and file annual accounts or Confirmation Statements for Companies House
- using money or assets belonging to the company for personal benefit or gain
- failing to co-operate with the Official Receiver or Insolvency Practitioner
- failing to submit tax returns or pay over to the Crown tax or other money due
When a complaint is made against a director, they are notified about the allegations in writing. The director is then given three options:
- wait to be taken to court for disqualification
- defend the allegations if they believe them to be untrue
- by voluntarily disqualifying themselves to prevent any court action
If a director is declared bankrupt, served with a Debt Relief Order, or subject to any bankruptcy restrictions, the only outcome is an immediate disqualification.
Following disqualification, the director’s details are added to the Disqualified Directors Register at Companies House. This information is a matter of public record that remains in place until the period of disqualification ends, which could be anywhere from 2-15 years.
Can I resign as a company director?
You can resign as a company director for many reasons, such as retirement, ill health, moving to a new job, or being asked to step down from the position.
Resign as a co-director
If you are a co-director, there is no legal requirement for the company to appoint a replacement director when you leave. Private companies can be managed by just one director. However, the members may deem it necessary to appoint a new director if your departure is likely to affect the commercial and operational requirements of the business.
Resign as a director – sole director
If you are the sole director and shareholder of a solvent limited company, you have a number of options for your exit strategy:
- continue to own the business and appoint a new director to manage it on your behalf
- dissolve (close) the company and sell all of its assets
- sell the business and its assets to someone else as a going concern
Prior to making any such decision, you should always seek professional legal advice.
If you choose to appoint a new director to manage the business on your behalf, you can continue to own the company as a shareholder. This will allow you to maintain overall control and receive profit distribution through dividend payments. You will need to pay the new director, so you be sure of the viability of this option.
Alternatively, you can simply close or sell the business. Your limited company is a distinct legal entity, so you can transfer ownership or sell the business to someone else. You would have no further involvement once the transfer or sale is complete.
Appointing a replacement director
If you decide to maintain ownership of the company, you can also appoint a successor to run day-to-day business affairs on your behalf. A limited company must always have at least one human director, so you will have to appoint someone before resigning.
The role of director is an important and responsible position. You must ensure that any new individual has the skills and knowledge to carry out the required duties and responsibilities. As the owner of the business, you can stipulate the extent of the new director’s powers in the articles of association.
You must inform Companies House when a new director is appointed. This can be carried out online using Form AP01 ‘Appointment of director’. After the details of your new director have been registered, you can resign as a director and notify Companies House on Form TM01 ‘Termination of appointment of director’.
Closing your company
You may decide that closing your company is the best option. If the business is solvent (i.e., it can pay all of its bills), has paid all outstanding bills, and has not traded in the past 3 months, you can apply to have it struck off the Companies Register. To facilitate the legal closure of your company, you must fulfil a number of requirements, such as:
- informing all parties that may be affected by the closure of the business
- contacting HMRC and paying any taxes owed
- filing the final annual accounts and Company Tax Return
After all assets have been sold and all liabilities have been paid, the remaining capital is yours to keep. Companies House will advertise the application for closure in the local Gazette for your region. Provided no objections are raised, your company will be struck off the register within 3 months. When this happens, the company will cease to exist.
Selling your company
Selling an existing company depends on many factors, for example, the current financial climate, market conditions and trends, the value and viability of your business, and the potential buyer profiles at the time you decide to sell. Your business should show signs of minimal risk to any potential buyer. It should have:
- a proven track record of consistent profitability
- an established customer base
- a strong reputation and brand image
- a positive forecast for future earnings, sustainability, and growth
- the ability to withstand a change of ownership
The decision to sell requires a great deal of research, planning, and patience. It is highly unlikely that you will sell your business in an instant, particularly if you want to get a fair market value.
Resignation may take a lot longer if you choose this route, but it could also prove extremely lucrative. There are many legal, financial, and administrative factors to be aware of, so you must consult an accountant or professional business advisor before taking any steps toward selling your business.
Notifying Companies House about the removal of a director
Informing Companies House about the removal of a director is a relatively simple process. You can use Rapid Formations’ free Online Admin Portal to deliver this information instantly and securely.
If you are an existing client, simply click on ‘Client Login’ on the top left-hand side of our website to update and submit the required information. Non-clients can create a free account, import an existing company, and update the necessary information thereafter.
Once your company has been registered on our portal, you will be able to view and manage your company details at any time, report changes to Companies House, view statutory filing deadlines, download company formation documents, and file Confirmation Statements and resolutions.