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There are many reasons you would want to appoint or remove a company director. Perhaps you want to bring on another person to help administer the company. Alternatively, one of your company’s directors may have misbehaved, and you want to know if you can dismiss the director. This article will explain how to appoint and remove a company director and the consequences of not following the appropriate procedures.
Appointing a Director
Natural Persons and Minimum/Maximum Numbers
All companies must have at least one director. The director must be a natural person, rather than another company. If you want a company to have the powers of a director, a natural person of the company can hold the director’s office on behalf of the other company. However, you should ensure that this natural person fulfils their obligations as a director, particularly their duty to avoid conflicts of interest.
Age
By law, directors cannot be younger than 16 years of age when they exercise their powers as directors.
Notably, there is no maximum age limit.
Bankruptcy, Insolvency, and Crimes
In general, you cannot appoint someone with ongoing bankruptcy proceedings against them in their personal capacity.
Likewise, suppose your company was wound up because of insolvency and has since begun to trade again (a “phoenix company”). In that case, you usually cannot appoint the company’s previous directors within 12 months of the liquidation process.
Further, you may wish to appoint someone with previous convictions for serious criminal offences involving fraud or theft in a commercial context. In this case, you should seek advice from a lawyer on whether they are eligible to be a director.
Other Restrictions
The law restricts certain professions from serving as a director, including the company’s statutory auditor.
If the person you appoint is a director of another company, they have to observe their directors’ duties owed to each company. In practice, if there is any conflict of interest or suspected conflict of interest, they may need to seek authorisation from the independent directors. They likewise will need to declare their interest in any transactions between the companies.
Process of Appointment
Appointing a new director to your company is relatively straightforward. Your company’s articles may specify the procedure.
Appointment via Board of Directors
If your private company has used the model articles of association, your company’s board of directors will have the power to appoint a new director. Likewise, they can also fill a vacancy through the board’s usual decision-making procedures. In practice, your board can do this at a formal board meeting or the annual general meeting. However, if all the directors’ unanimously agree, it is not necessary to convene a formal board meeting.
Suppose you intend to make the appointment by a decision of the board. In that case, you should ensure that each director properly exercises their powers of appointment in line with their wider directors’ duties.
Appointment via Shareholders
Subject to the company’s articles, the company’s shareholders (also called “members”) will have the right to appoint directors by ordinary resolution. This requires a simple majority of votes.
Obtaining Consent from the Appointee
The person you wish to appoint must consent to their appointment as a company director. They can do this by signing a consent to act.
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Formalities After the Appointment
Record Keeping
To comply with the law, your company must update its:
- register of directors; and
- register of directors’ residential addresses.
In practice, this will you can find this within the same registry. Likewise, you should ensure you include the following information about the new director(s), such as their:
- first and last name, along with any other names they were previously known by;
- date of birth;
- occupation;
- nationality; and
- service address, which in practice is the company’s registered office.
Further, if they reside in the United Kingdom, you should specify which of the four nations they live in. Alternatively, if they reside outside the UK, you should specify which country.
Filing With Companies House
To comply with your company’s filing requirements, you must further notify Companies House within 14 days of the newly appointed director’s appointment.
You will need to provide much of the same information you are required to keep in the company’s records.
You may choose to do so online.
Removing Directors
Company law refers to the process for removing directors as a “termination of appointment”.
You can do this in the following ways:
- by resignation;
- under the procedure set out in your company’s articles;
- by ordinary resolution of the shareholders; and
- through other processes such as a specified termination clause in the director’s service contract or by court order.
A director’s appointment will also be terminated automatically upon their death.
We will consider the main ways to terminate a director’s appointment.
Resignation
Subject to the company’s articles, a director can resign at any time by serving proper notice on the company. In practice, you can achieve this by ensuring that each of the other directors has read a copy of the director’s resignation letter.
No period of notice is necessary for the resignation to be effective. However, if the resignation does not comply with the director’s service contract, the company may be liable for damages.
Specified Termination Procedures
Your company’s articles likely have several circumstances where a director’s appointment will automatically cease. Depending on your company’s articles, these circumstances may include if the director:
- becomes ineligible to be a director under the law (see above);
- becomes bankrupt;
- is physically or mentally unfit for office; or
- resigns.
In some cases, the board will have no power to sanction or approve the director’s actions. If the director meets any of these conditions, they automatically cease to hold the office.
Your company’s articles may grant directors certain powers to terminate another director’s appointment.
Removal by Ordinary Resolution
A company’s shareholders have an inherent right to remove a director by passing an ordinary resolution, which requires a simple majority of shareholding votes. A company cannot remove this right, even if the company’s articles seek to do so.
Indeed, the shareholders must approve the removal through an ordinary resolution. It is not possible to exercise this right through a written resolution.
From a practical perspective, the company’s directors should give all shareholders at least 28 days’ notice of the meeting. This notice should specify that the meeting relates to the potential removal of the director under the Companies Act 2006. In addition, the notice should name the director.
Likewise, the other directors should ensure that the director in question has received notice of the meeting.
Because removing a director via ordinary resolution is often a delicate process with high stakes, you should seek advice from a solicitor to ensure that you follow the proper procedures.
Formalities
Your company must notify Companies House within 14 days that a director’s appointment has been terminated.
You can usually do this through the Companies House online service.
Other Considerations
If a director has had their appointment terminated, they may still owe certain duties to the company. These include the duty to:
- avoid a conflict of interest; and
- not accept benefits from third parties in any circumstances connected with actions done while a director.
If your company does not follow the proper procedures for removing a director, in certain cases, this director can bring a claim against the company. As a result, your company may owe a considerable sum of money.
Key Takeaways
For most companies, the directors and shareholders will have separate ways to appoint and remove directors. Your company’s articles of association will usually specify the appointment and removal process. Therefore, you should review your articles of association and ensure you follow the correct procedures.
If you need help to appoint or remove a director from your company, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The process of appointing new directors to your company depends on your company’s articles of association. In general, both directors and shareholders have the power of appointment.
Like appointments, removing directors depends largely on the process set forward in your company’s articles of association. Likewise, subject to the articles, directors and shareholders have the power to remove directors from the company’s board.
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