Removing a director from a business can be tricky as they are often employees and shareholders.
When properly handling the removal of a director it is essential to avoid legal disputes and ensure company stability. If a removal is badly managed it can easily lead to shareholder disputes or employment law claims which disrupt the day-to-day running of a business.
You can get it right with the help of this complete guide on the legal and procedural aspects of removing a director from a company in the UK. The content will cover the reasons for removing a director, the legal framework, the steps involved in the process, and potential challenges.
We’ve written this for:
Business owners and entrepreneurs
Company shareholders
Corporate legal departments
Board members and company executives
After reading business owners, shareholders, and corporate legal teams will understand the importance of handling the removal process correctly and be encouraged to seek the professional expertise of legal assistance for a smooth and compliant procedure.
Our corporate solicitors are highly experienced in director removal and can guide you
through the complexities of removing a director in the UK whether you are an SME or
corporate.
Reasons for removing a director
There are various reasons why a business might choose to remove a director.
They include:
Performance issues – if a director is not living up to the standard expected of them they can be removed. A director can be removed due to gross negligence. They may be failing to meet their responsibilities and the company may be performing poorly as a result leading to the shareholders requesting a change of leadership
Misconduct - unethical behaviour such as breach of fiduciary duties, or legal violations such as bankruptcy or being convicted of a serious offence can trigger shareholders into a change of leadership. This is because directors have a duty not to accept benefits from third parties for actions they took or did not take while in their position
Conflicts of interest - situations where a director’s interests conflict with the company’s interests, such as the exploitation of property, information, or an opportunity that they learned of while employed in their position as company director
Death or ill health – if a director dies, becomes incapacitated, or has a decline in health that impacts their ability to carry out their role, they can be removed
Loss of legal qualifications – if a director loses certain legal qualifications that they require to perform their role, it can be reasonable to remove them
Company restructuring – removal is part of a broader organisational change or restructuring
Breaching company policy – if a director persistently breaches company policy or procedure they may be removed
Breach of statutory duties – violating statutory duties outlined in the Companies Act 2006 can be grounds for removal
Legal framework for removing a director
Under employment law is a legal framework for removing a director. The Companies Act 2006 is the most relevant piece of legislation.
The act states that every company must have at least one director. If the director leaves, the company must find a new director to replace them. This needs to happen before or at the same time as the resignation or removal.
Company articles of association are documents that outline a company’s purpose and how they are structured. They can include provisions outlining specific procedures for director removal or resignation. They may make it easier to remove a director, however, the Companies Act 2006 states that articles of association can’t bypass its rules.
Companies that don’t have articles of association have model articles.
Article 18 addresses when directors stop being directors:
If they resign
A majority of shareholders or members remove them
They are ordered to stop being a director by a court
They become bankrupt
If they are physically or mentally incapable in their doctor’s opinion
Shareholders have various rights. Under the Companies Act 2006 they have the right to remove a director for any reason by a majority vote in an ordinary resolution.
The process of removing a director
To discuss a resolution to remove a director the board must call a board meeting where a vote will be held.
To remove a director via an ordinary resolution, a company’s board of directors needs to send its members a special notice that they intend to remove a director at a member’s meeting. It’s known as a special notice as extra notice is required than for typical shareholder meetings. The notice must be sent to the director that a business intends to remove them.
There is a procedure in the Companies Act 2006 which allows shareholders to hold a vote to remove a director even if the board refuses or can’t call a shareholders meeting. Only 5% of shareholders are necessary to call a meeting. A resolution to remove a director can be passed by a majority of shareholders voting at a meeting, so only a small number of shareholders are required to vote on a director's removal.
Directors have a right to defend. This is a legal right where directors need to receive notice about the intent to remove them and be given a chance to defend their position before removal.
Formal documentation is required to remove a director. Board meeting minutes should be recorded to capture the events and a record of the proceedings at a board meeting to consider a member’s ordinary resolution should be kept.
A board resolution should be captured, this is a formal document that records the decisions of the board of directors.
You will need to register a director's removal with Companies House. As soon as a director is terminated Companies House must be informed.
Challenges in removing a director
Removing a director can be challenging and trigger legal disputes and cause risk to a company’s reputation.
Directors that have been removed may bring legal action. It is important to consider the grounds for removal carefully before removing a director. You should carefully consider the company’s articles of association before beginning a process to remove a director. It is also essential to seek legal advice to ensure compliance with resolution procedures and voting requirements.
Director disputes can arise when directors believe they have been unfairly treated. To avoid disputes, seek guidance from our director dispute resolution solicitors to ensure you follow the right processes and regulations to navigate this complex area of the law.
Reputational risks are possible when a director is removed. This can be the case if there is a dispute between the company and the director, especially if this is publicised in the press. Companies may protect their and their director’s reputation by ensuring a confidential process. Non-disclosure agreements may be utilised to mitigate these risks.
Post-removal considerations
After a director has been removed businesses must update their company records.
A company’s statutory records include details about a director including their name, date of appointment and termination. So, when a director is removed their date of termination should be added to the company register.
You should also notify Companies House of the director’s removal. Companies House records are effectively publicly available company registers, whereas company statutory records are private.
It’s also crucial to communicate the change effectively. It’s important to be transparent when communicating the director’s departure to stakeholders, employees, and the public. This will benefit the company's mood internally and give a reason for why the company made the decision.
Start by stating the reason for the director’s departure, and provide any relevant background. Outline what will happen next, including who will be taking over the role.
When appointing a director, it’s important to begin succession planning early. This ensures business continuity and compliance with the Companies Act 2006, as when removing a director a company should have a successor lined up before or at the time of the dismissal or resignation.
FAQs
Can a director be removed without a shareholder vote?
A director cannot be removed without a shareholder vote unless the company’s articles of association allow for it. There must be a special provision in the company’s articles of association, otherwise the statutory procedure must be used.
What is the notice period required for removing a director?
The notice period for removing a director is 28 days before the meeting where the resolution to remove them will be considered.
Can a director challenge their removal?
A director can challenge their removal if the statutory process is not followed correctly.
Directors may be able to challenge their dismissal under the following grounds:
What are the legal risks of removing a director?
If a business removes a director without legal grounds there can be legal consequences. These include paying damages to the director, losing shareholder goodwill and damage to the company’s reputation.
How long does the director removal process typically take?
The time needed during the process to remove a director can be anything from a few weeks to a few months. This depends on the complexity of the situation, the procedure outlined in the company articles, the director’s response, whether they challenge their dismissal and any legal disputes the company has to answer.
Why choose Lawhive for director removal services?
There are three main reasons to choose Lawhive if you want to remove a director:
Expertise in corporate law - Lawhive’s experience in handling complex director removal simplifies the process. We focus on legal compliance and strategic outcomes to help you navigate the process smoothly without disruption to business operations
Combination of technology and legal expertise - we leverage technology to provide efficient and cost-effective services. Our platform is user friendly, use it to upload documents and get 24/7 support
Efficient and discreet – our expert corporate solicitors are committed to managing the director removal process efficiently while maintaining confidentiality and minimising business disruption
Get help with the legal process to remove a director
Company director removal can be a highly complex process to navigate. There are financial and reputational risks to overcome, this is why it is so important to follow the correct legal procedures when removing a director.
Fortunately, our solicitors are experts in this area of the law.
Whether you’re a business owner, shareholder, or part of a corporate legal team, contact Lawhive today for expert guidance and support in removing a director.