What is the legal basis for resigning as a company director?
The process for resigning isn't strictly defined by the Companies Act 2006, nor is it set out in the model articles of association. This means that before resigning, you must review the company’s articles of association and your individual director contract (if you have one). These documents are the primary source of rules for your resignation, as they may specify a required notice period or a particular method you must follow to step down. If the documents don't specify a process, the common legal practice is to resign by submitting a letter to the board of directors.
For example, if the company has adopted the model articles of association or our Articles of association, they provide that your resignation takes effect as soon as the company receives your notice and the terms you set out in that notice are met. This means that, if you stipulate a 30-day notice period in your letter, your resignation takes effect 30 days after the company receives the letter.
What issues should a director consider before resigning?
Before you submit your formal resignation, you must address any outstanding financial or contractual ties you have with the company. Dealing with these matters beforehand helps ensure a smooth departure and avoids later legal disputes.
If you're also a shareholder, you may be required to sell your shares under the articles of association. If this is the case, there might be specific provisions on how you can offer your shares for sale contained in the articles or your shareholders’ agreement. You must follow these procedures exactly. For more information, read Compulsory transfer of shares.
Any director’s loans (either loans you've made to the company or loans the company has made to you) should also be settled prior to your departure. If you can’t fully settle them, you must agree on a clear repayment schedule with the company's remaining directors.
How do you resign as a company director?
You should formally resign by sending a resignation letter addressed to the other directors of the company. It's crucial that this letter clearly and unambiguously states your intention to resign. The resignation is usually effective on the date the company receives the notice, or on a future date specified in your letter. Once your resignation takes effect, you're no longer responsible for carrying out your director's duties.
What does a director's letter of resignation need to include?
Your letter of resignation should be clear and formal to prevent any potential legal confusion regarding your status. At a minimum, your letter should include:
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a clear statement that you are resigning from your position
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the specific date the resignation takes effect (the 'effective date')
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confirmation that the letter is being sent to the registered office or another director
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a request that the company register your departure with Companies House
You should also take steps to ensure the company officially receives the letter, such as sending it by recorded delivery or hand-delivering it and getting a receipt.
What are the next steps after resignation?
The main responsibility for action after you resign lies with the company itself. The company must notify Companies House of your resignation within 14 days of the date it takes effect. The company achieves this by submitting the required form to Companies House.
If you were also a shareholder, the company must also update its internal record of shareholders. Where relevant, the company’s register of persons with significant control must also be updated at Companies House.
If the company fails to file the required documentation, it commits a legal offence, and the remaining directors could face prosecution.
The company must also remove you from all key internal systems and documents. This typically includes updating company bank mandates, removing you as an authorised signatory for financial transactions, updating payroll and tax records, and ensuring all company correspondence and stationery reflect the change in the board of directors.
What if the resigning director was the only director?
Private limited companies must have at least one director who is a natural person at all times, while public companies must have at least two directors at all times.
If the director resigning is the only director or the sole individual director (ie director that is not a corporate body), then a replacement is required. Failure to do this can result in the company being struck off the register. For more information, read Appointing and removing directors.
Can a company director who has resigned still be held liable for their actions as director?
A company director can still be held liable for issues that arose during their tenure. Resignation is not a blanket shield against liability for past conduct. Your director's duties continue to apply right up to your effective date of resignation.
If a company goes insolvent, the officials handling the liquidation (such as liquidators, administrators, and administrative receivers) are required to produce a report on the conduct of all company directors during the previous three years (irrespective of whether they have since resigned or not). This can potentially lead to a Director Disqualification Order made by the courts if they find evidence of unfit conduct. For more information, read Misfeasance and insolvency and Disqualification of company directors.
Furthermore, directors who continue to exert influence over the board of directors after their resignation may be considered 'de facto directors'. If this is the case, they will be treated as current directors and can, therefore, continue to be held liable for the company’s actions and face disqualification proceedings, even if they have formally filed their resignation.
If you have any questions or concerns about resigning from your role as company director, do not hesitate to Ask a lawyer.
