Directors are appointed by members (shareholders or guarantors) to lawfully manage the day-to-day business activities and finances of a limited company. Members also have the power to remove a director under certain provisions in the company’s articles of association, by ordinary resolution of the company’s members or by a disqualification order made from an authorised body.
The rights, responsibilities and duties of directors are set out in the Companies Act 2006 and the articles of association. In some cases, these may also be matters in the shareholders’ agreement or service contract to consider.
If you wish to remove a director prior to the expiration date of his or her period of office (if there is any), you must ensure such action will not breach any company laws or provisions, otherwise the director may have just cause to protest and receive compensation. The easiest solution would be to broach the subject of voluntary resignation and offer the director a severance package. Failing that, there are a number of other options.
Remove a director under the company’s articles
There are also certain circumstances set out in the model articles of association that require the immediate removal of a director:
- 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.
- A 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 that he or she is resigning 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 his or her role. If a company has only one director, a new director must be appointed as soon as possible.
Remove a director by ordinary resolution
Where the articles do not cover the cause for removal, you should call a general meeting of the members (shareholders or guarantors) to vote on the matter and pass an ordinary resolution. This requires a ‘simple majority’ vote (over 50%) in order to be passed. 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, and he or she will be permitted to attend the meeting and make representations.
Minutes of the meeting should be taken. A copy must be kept at the company’s registered office or SAIL address with a copy of the resolution. 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 Portal.
Director disqualification by an authorised body
Directors can be disqualified if they fail to maintain their legal responsibilities and their conduct is deemed ‘unfit’ (incompetent, in other words) 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 statement 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, he or she will be notified about the allegations in writing. The director will then be given three options:
- Wait to be taken to court for disqualification.
- Defend the allegations if he/she believes them to be untrue.
- Voluntarily disqualify him/herself 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 immediate disqualification.
Following disqualification, the director’s details will be added to Companies House’ Disqualified Directors Register. This information will remain there until the period of disqualification ends, which could be anywhere from 2-15 years.
Can I resign as a company director?
Yes, 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 shareholders 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 then have a number of options for your exit strategy:
- You could continue to own the business and appoint a new director to manage it for you.
- You could dissolve (close) the company and sell all of its assets.
- A further option, you could sell the business and its assets to someone else.
You should always seek professional legal advice prior to making any such decision.
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 need to be sure that it’s a viable option to keep the company in operation.
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 done by completing and filing Form AP01 ‘Appointment of director’. After the details of your new director have been registered, you can resign as a director, letting Companies House know by filing the 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 (it can pay all of its bills), it 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 business, you must fulfil a number of requirements, such as:
- Informing all parties that may be affected by the closure.
- 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 firm will be struck off within 3 months and will also cease to exist.
Selling your company
Selling an existing company depends on many factors: 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 a flash, particularly if you want to get the right price for all your hard work.
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, then simply click on ‘Client Login’ on the top left-hand side of our webpages 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 annual returns and resolutions.