Removing a company director – everything you need to know

Young businessman holding cardboard box of belongings leaving office after being removed as a company director.

When you set up a limited company, you’re required to appoint at least one company director (or two, if your company is public). That director is then responsible for managing the day-to-day running of your business, and they’ve also got some important reporting and filing obligations.

Because this is such an important job, it goes without saying that you’ve got to think carefully when appointing a company director — and if the director(s) you’ve got in place isn’t getting the job done, you need to be able to remove them too.

If you and your fellow shareholders (if there are any) decide you would like to part ways with one of your directors, there are several pathways you can take to remove and replace them. But it’s important that you follow certain statutory procedures as part of the removal process.

This guide explains why you might remove a company director, the statutory procedure to remove a director (and alternative methods), potential complications you might run into, and more.

Why would you remove a company director?

Your company directors have a responsibility to manage your business in a way that ensures value is being maximised for shareholders. They’re also tasked with making sure your limited company complies with all of the relevant legal requirements and industry-specific requirements — and if your company directors aren’t doing that, you may have a good case for their removal.

Examples of failing to meet these responsibilities might include failing to submit tax returns to HMRC or pay tax owed, failing to prepare a company’s annual accounts and file them with Companies House, or failing to maintain proper accounting or financial records.

That being said, there are plenty of other circumstances in which a group of shareholders might decide that a company director is unfit to perform their duties. This might include using money or assets belonging to the company for personal gain, or continuing to trade to the detriment of creditors while the company is unable to pay its debts.

On a more general basis, companies are also known to remove a director if that individual makes risky decisions that are out of line with your company’s overall strategy — thus putting the long-term success of your company in jeopardy.

Either way, the termination must be in accordance with the law, your articles of association, the shareholders’ agreement (if applicable), and any service agreement between the director and the company. We’ll cover this process shortly.

Just remember that you need to make sure your company has at least one “natural” director at all times (meaning a human individual rather than another corporate entity).

What’s the statutory procedure to remove a company director?

The statutory process you need to follow to remove a company director falls under the Companies Act 2006 (Section 168). Although there are several steps involved, the requirements you must adhere to are actually quite straightforward.

The process of removing a director starts by giving “Special Notice” of the company’s intention to remove a director. That means you’re legally obliged to give at least 28 days’ notice to all shareholders that there’s going to be a meeting to remove a director — unless you’ve created an alternate timeline in your articles of association, shareholders’ agreement, or director service contract.

At least 14 days before shareholders meet to vote on the resolution, your directors are obliged to give notice of the meeting details to every shareholder.

If this resolution doesn’t coincide with a pre-scheduled shareholders’ meeting, a special meeting can be called.

The director who is proposed to be removed will be entitled to make representations at the shareholder meeting and speak on their own behalf. By contrast, the board is also allowed to make representations to shareholders explaining the grounds for removal.

After any representations have been made, a vote can be conducted amongst shareholders. This can either be by a poll vote or a simple show of hands. If more than 50% of shareholders in attendance vote in favour of the resolution to remove the director, the resolution passes.

If the director you’ve removed was your sole company director, you’ll need to appoint a new one simultaneously.

After the meeting, you must then report the changes to Companies House either online or by post using Form TM01 explained below. This must be done within 14 days of the removal. You’ll also need to update your company’s statutory register of directors accordingly.

Reporting the removal of a director to Companies House

Once the director has been removed, you are legally obligated to notify Companies House of that change.

This can be done by completing Form TM01 and then submitting it either online or via post. When you complete this form, you’ll need to include:

  • Your company number
  • Your company name
  • The date of resignation
  • Your date of birth (this is not needed if the director being removed was a corporate director)
  • The full name of the director in question
  • The signature of a person authorised to sign the form on behalf of a company (usually another director or the secretary)

It’s free to file this form. You’ve just got to make sure that you submit it within 14 days of the removal.

Potential complications of removing a company director

The statutory process of removing a limited company director can be relatively fast and simple — but it’s important to remember that there are a few situations in which you can run into difficulty.

The first potential complication that could arise when removing a director is if that company director is also an employee.

Although the Companies Act spells out a clear pathway for you to remove an individual as a company director, the Act doesn’t prevent any other claims the director might have.

For example, your former director may have legal protections against unfair dismissal. In order to mitigate this, you should check your articles of association before the removal process begins, to familiarise yourself with any existing processes or rules you’ll need to follow.

Likewise, you may run into trouble if the company director you’ve removed is still a shareholder.

As a retaining shareholder, your former director could choose to issue an unfair prejudice petition if they feel they can demonstrate that your company’s affairs were conducted in a way that caused unfair prejudice to the interests of shareholders.

That being said, it’s far more common for a limited company to simply buy back any retained shares that a former company director holds. As a result, you should be financially prepared to negotiate a buy-back deal as part of any removal.

Are there any alternative methods to remove a director?

Calling a big shareholders’ meeting isn’t the only way to remove a limited company director.

Generally speaking, many companies simply adopt the ‘Model’ articles of association. These provide a number of provisions and special situations in which a director is required to be removed – these can be found in article 18 of the Model Articles. These include situations like if the director is diagnosed as being unable to remain in office by a medical practitioner, or a bankruptcy order has been made against them.

Your company’s memorandum and articles of association can also create and outline specific circumstances in which a director might become disqualified within your company. It may also create alternative methods of removing said director in a quicker timescale than that which is provided by the statutory procedure.

If your director fails to maintain their statutory responsibilities, an official complaint can be made. Based on that complaint and any subsequent investigation, a director can be disqualified by the Court, Companies House, HMRC, the Financial Conduct Authority (FCA), the Competition and Markets Authority (CMA), and more.

A disqualification order prevents an individual from being a director — as well as prevents them from taking part in any other company for the duration of the disqualification period.

It is important to note that if a director resigns, you do not have to go through this removal procedure. In this case, once the resignation has been received, all you have to do is notify Companies House of the change using Form TM01 within 14 days of said resignation.

The bottom line

Regardless of whether you’re a limited company shareholder looking to remove a director, or a director who’s up for removal, it’s always important that you seek legal advice from a professional to clarify the rules and statutory requirements that must be upheld as part of the process.

If mistakes are made on the side of either party, it could create a whole new laundry list of problems for individuals or the limited company itself. To avoid that mess, clear and professional legal advice is essential.

Want to learn more about UK company rules?

Check out the Linnear COSEC Insight Centre to make sure your business stays in the know about company rules and guidance. You can also get in touch to find out how our company secretarial services can drastically reduce your costs and free up your time to help you focus on running your business.

About the author

Nicholas joined in 2018 to set up the Company Secretarial Department in the group’s company formation divisions. After establishing the department, he was a key stakeholder in the development of Linnear CoSec. Prior to joining the group, Nicholas worked in a variety of client-facing positions at an international provider of corporate services, caring for a diverse portfolio of companies. He is a Chartered Secretary and Governance Professional, and holds a bachelor's degree in Politics as well as a Masters in Corporate Governance.

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