Limited companies in the United Kingdom may need a new director or may need to have a director removed from position and this can happen because of a number of reasons. It can be because the company may want to have one of their business partners become a director with the company growing. It may also be because a director is not able to do the duties that come with the position. It can also be because a director has decided to retire or resign.
Who can remove or appoint directors?
Directors are commonly appointed by shareholders through the Annual General Meeting (AGM). With special cases, directors can be appointed during the Extraordinary General Meeting (EGM). A resolution will be done about the appointment and shareholders vote on it. If it gets the majority of votes, the resolution will be passed.
In case of an unexpected vacancy, directors of a limited company has the power to appoint a temporary director. This appointment, however, needs to be confirmed by the shareholders during an AGM. Shareholders have the power to delegate their right to appoint a new director. A committee appointed by shareholders can also do the same. This delegation of power is convenient for shareholders.
How is a director appointed or removed?
Normally, proposals to appoint a new company director is discussed among shareholders and current directors with no need for an official meeting. This does not need immediate action. It is important to note that if a company does not have a new director when one resigns or retires, there is a change in the balance of power in the company.
The entire process of appointment of a new director is recorded via the company’s articles of association. Not all companies follow the same process though. The total number of company directors can be limited by the articles of association. Most of the time, a new director is appointed only if a vacancy is available.
Upon the appointment of a new director, the limited company should notify Companies House. A notification should be sent within 14 days of the new director’s appointment via the CH WebFiling service or through the AP01 or AP02 form.
There are different reasons for the removal of a director. It can be resignation or termination and it should be according to the terms in the Companies Act 2006. It should also be according to the terms in the articles of association. The service agreement of the company with that director can also be a basis for removal. What is important is that a limited company should always have one director at least.
How is a director removed?
A company director can be removed in a number of ways. One of these would be via the articles of association. Shareholders choose directors and one can be removed the same way. If majority of shareholders voted to have a director removed during a meeting, that director can have h is position taken from him.
The follow are usual reasons for the removal of a director:
- Disqualification as based on the law
- The company going bankrupt
- The director has a mental disorder as stated under the Mental Health Act of 1983
- Breach of service contract
- Resignation from position
- Consecutive absences during board meetings for a total of six months
Ordinary resolution is one of the ways to remove a director from office. A shareholder who wants a director removed must have a proposal, file it and provide the company special notice which should be done at least 28 days before an AGM. Shareholders who hold at least 10% voting share has the power to request for an EGM for all shareholders to vote on the matter.
When a special notice is received by a company about a director’s removal, the board must ensure that proper notification of the director concerned is done. That director can offer written representations and can attend the meeting to his side of the issue.
Retirement by rotation is another way to remove a director from office. During the AGM, 1/3 of the total amount of company directors should retire but should be available for re-election. Shareholders can remove a director by making sure they do not vote for that person during reelection. Executive directors are exempted.
Another way to remove a director would be through disqualification by the court. The Court has the power to disqualify a director. It can also remove any disqualifications. A director is usually disqualified by the Court should there be proof of that person’s incompetence.
The removal of a director can also be done through the articles of association. This document has the list of circumstances that leads to the disqualification of a director. It is not advisable though that the articles of association be edited just so a director can be removed from office.
A director’s removal or appointment should not be taken lightly by anyone. Proper rules on how to do this should be followed to the letter. All of these can be discussed during the formation of the company. Help on company formation is possible through special services.
published under Starting a Business
