A company director can be forced out if shareholders use their voting power to remove them, typically by passing an ordinary resolution with a simple majority. For your business, this creates significant risk in ownership disputes, as losing board control can affect strategy, operations and even your shareholding position, particularly if you are both a director and investor. While shareholder agreements may offer some protection, they cannot prevent removal and may instead create compensation claims.\u00a0 This article explains when a director can be forced out, how the removal process works and the legal risks involved.<\/p>\n\n\n\n
Before delving into the specifics, it\u2019s essential to understand the roles involved:<\/p>\n\n\n\n
Shareholders can remove a director by an ordinary resolution<\/a> (which requires the affirmative vote of shareholders holding more than 50% of the voting share capital). This is a statutory right contained in the Companies Act 2006<\/em>, and the company\u2019s articles of association cannot exclude this right of the shareholders. Any attempt to do so is automatically void. <\/p>\n\n\n\n This means that a company, through its articles of association, cannot increase the threshold required to remove a director of a special resolution (i.e., 75% or more).<\/p>\n<\/div>\n\n\n\n The practical consequence is that if more than half of the shareholders wish to remove a director, they can do so. In doing so, the company effectively removes the directors at the direction of its shareholders.<\/p>\n\n\n\n A shareholder\u2019s voting power<\/a> depends on how the shareholders vote on the ordinary resolution to remove the director. <\/p>\n\n\n\n Consider the following example. ABC Ltd has the following shareholders with the following percentage of shares (assuming they are all ordinary shares with voting rights attached):<\/p>\n\n\n\n If the shareholders vote on the resolution at a general meeting (rather than via written resolution), the default position is that a show of hands decides votes. This means each shareholder has one vote, regardless of the number of shares they own. <\/p>\n\n\n\n Accordingly, if John were a director and three out of the four remaining shareholders wanted to remove John, they could do so by a show of hands.<\/p>\n\n\n\n However, shareholders with more than 10% of the voting shares, or at least 5 shareholders having the right to vote on the resolution, can demand a poll vote. If John demanded a poll vote, he would outvote the remaining shareholders and remain as a director.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat Are the Laws Regarding Shareholder Voting? <\/h2>\n\n\n\n
Shareholder <\/strong><\/td> Percentage of Shares Owned <\/strong><\/td><\/tr> John <\/td> 51%<\/td><\/tr> Ahmed<\/td> 9%<\/td><\/tr> Izzy<\/td> 20%<\/td><\/tr> Carter<\/td> 10%<\/td><\/tr> Joy<\/td> 10%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n