Appointing and removing a company director

  • Posted

By Daniel Burns, Partner and Head of Company Commercial

Every limited company has a number of positions that must be filled by law. A company must have at least one shareholder and at least one director.

The shareholder of a company is the owner, and they do not tend to have any day to day responsibility in running the company, whereas, company directors do have this responsibility. It is the decisions of the directors that will most likely determine the direction and success of the company. For this reason, it is important that suitable directors are appointed, whilst unsuitable directors may need to be removed.

How to appoint a director

There are a few different ways a director may be appointed, and these are usually determined by what is contained in the company’s articles.

Usually the company’s articles give the directors of the company the power to appoint further directors. The company’s articles may also allow shareholders to appoint further directors, providing that shareholders holding at least 51% of the voting shares agree to this.

Whilst the above is generally true, it is important that the company articles are carefully analysed before action is taken to appoint a new director.

In some very specific circumstances it is possible for the court to appoint directors.

Removing a director

As mentioned above, the vast majority of companies are run by the company’s directors. Unfortunately, it is not always the case that the directors in charge are running the business well and they may in fact be deliberately taking advantage of the company. If a director is not performing well, and it appears as if the company would be better off without them, there are a few ways in which they can be removed.

Firstly, you may want to consider whether the director can be persuaded to resign, as this is often the quickest and most cost-effective route for removal. However, if this is not viable other options are available.

The company articles often contain provisions that automatically terminate a director’s appointment on the happening of a certain event, such as the bankruptcy of the director. The articles may also contain another mechanism which allows the director to be removed. In any case the articles should be read very carefully, for any wording which may help remove a director.

The shareholders of the company who hold at least 51% of the voting shares, can always vote to remove the director under a statutory route. This method of removal does require specific notices and strict timeframes to be adhered to, so you should seek expert advice if you wish to proceed under this route.

If there is a service agreement between the director and the company, this may contain certain provisions which allow for the director to be removed.

In some specific circumstances it is possible for a court to remove the director. Lastly, a director will cease to hold their office on the event of their death.

Once the director has been removed the company should make the usual filings at Companies House and update the company’s statutory books and registers.

This is a short summary of the points that should be considered where you are thinking about removing a director.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.