Appointing and removing directors

The rules for appointing a director are set both by law and by a company’s governing documents (the Articles). Make sure that you read the Articles before you start, to check the process and requirements.

A company’s shareholders can appoint directors. The Board of Directors can normally also appoint directors but check whether the Articles say that they can do this and whether the shareholders must then confirm the appointment at a general meeting.

Non-executive directors are appointed using a letter of appointment (LOA). This is a contract setting out the terms of the appointment.

Executive directors are appointed using a type of contract of employment appointment (a Service Agreement), which covers their employment status, office as director and the relationship between these.

In general, the Board can decide the terms of the appointment. However, the law or a company’s Articles will take priority over the LOA or Service Agreement if there is a contradiction.

Appointment of a director must be notified to Companies House - either Companies House in Cardiff for companies registered in England and Wales, or Companies House in Edinburgh for companies registered in Scotland.

A company’s shareholders can always remove a director by following a formal process set by law. The LOA or Service Contract might give the director rights if this happens but cannot stop him from being removed.

Often, the Articles, LOA or Service Agreement might give a simpler way than shareholder resolution to remove the director. It’s important to check what these documents say about removing a director.

When an executive director is removed, he might have legal rights in his capacity as employee, such as unfair dismissal or discrimination.

If a company agrees to pay a director in connection with his removal from office then the payment might require shareholder approval.

A company’s Articles often require directors to retire by rotation whereby one-third of them must resign from office at the company’s general meeting and can only continue in office if re-appointed by shareholders.

Individuals can be disqualified from acting as a director for up to 15 years if they fail to meet their legal responsibilities or become bankrupt.

Removal of a director must be notified to Companies House - as with the appointment of a director, either to Companies House in Cardiff or Companies House in Edinburgh depending on where the company in question is registered. Additional formalities apply for public or listed companies.

Removing directors from office can be tricky. If you have any doubts, Ask a lawyer to check you are doing everything right.