There comes a time when a limited company may be in need of a new director or may need to remove one that is in position for any number of reasons. Maybe because a limited company may want to have a business partner become a director since the company is already growing. Or maybe because one of the current directors is not necessarily doing his or her duties and responsibilities well. Or maybe a current director has decided that it was time to retire or resign.
Who can appoint and remove directors?
Shareholders are the common people who appoint directors. They do this via the Annual General Meeting (or the AGM). There are special cases when appointment of directors happen during an Extraordinary General Meeting (or the EGM). There will be a resolution regarding the appointment and it will be voted on. It will pass if it gets a majority of the votes. If there is an unexpected vacancy, the rest of the directors of a limited company can appoint a temporary new director. However, the appointment should still be confirmed by shareholders during a general meeting. Shareholders can delegate power so they can appoint a new director. This can also be done by a committee appointed by the shareholders. Delegation of power is sometimes convenient for the shareholders.
How does the appointment or removal of a director happen?
Most of the time, the proposal to appoint a new director is really discussed by the shareholders and the current directors on their own time. It is not necessarily something that needs immediate action and decision. Shareholders also know that without a new director, the balance of power within the limited company also changes. The whole process of appointing a new director should be recorded in the articles of association of the company though the process may differ for each company. The total amount of directors in a limited company may also be limited as per the articles of association. It is most likely that a new director would be appointed only when there is a vacancy. When there is a new director appointed, a limited company should make sure that Companies House is notified about it. The company should send in their notification within 14 days of the appointment of the new director. To notify Company House, a limited company can choose to use the service known as CH WebFiling or it can also use the APO1 or AP02 form. In terms of the removal of a director, there can be various reasons for such. If a director resigns or is terminated, the resignation or the termination should follow the terms stated in the Companies Act 2006. It should also follow the terms in the limited company’s articles of association. It can also be based on the service agreement that the company has with the director. It is important to keep in mind though that a company should always have at least one director holding the position.
How are directors removed from office?
There are various ways that a director can be removed from office. One of them is removal under the articles of association. A director is able to have his position because it is what the shareholders want. However, he can be removed from his position if majority of the shareholders have voted against him during a meeting. There are shareholders who already hold more than 50% of the shares so that vote alone is enough. The common reasons for removing a director include the following:
• Disqualification of the director based on the law • Bankruptcy of the limited company • A director’s mental disorder as per the Mental Health Act of 1983 • A director’s breach of service contract • A director decides to resign from his position • A director’s consecutive absences from board meetings for six months
There are ways to remove a director and one of them is removal by ordinary resolution. Any shareholder who wants to remove a director should file a proposal and should provide the limited company with a special notice at least 28 days before there is a general meeting. A member who has at least 10% voting share can request for an extraordinary general meeting where the proposal will be voted on. When a company gets a special notice about the removal of a director, the board should make sure that the director concerned is properly informed since he can give written representations and can share his side during the meeting. Another way of removing a director would be through retirement by rotation. During the annual general meeting, a third of the total directors should retire and then be available for re-election. Shareholders have the power to remove a director by not voting for him during the reelection. Only executive directors are exempted from this. Disqualification by the court is another way of removing a director from office. The Court can disqualify a director and it also can remove any disqualifications. The Court usually disqualifies a director if there is proof that he has been incompetent in the post that he holds. Another way of removing a director would be via the removal under the limited company’s articles of association. The articles of association can state the circumstances of disqualification of a director. However, it is highly recommended that such documents not be edited just to remove a director. The appointment and the removal of a director in a limited company is something that should not be taken lightly. It is a very important aspect and the rules on how to do this should be properly followed.
published under Business Address Guides
