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Appointing and removing directors

When you appoint or remove directors from a company, there are legal formalities that must be followed to ensure that the appointment or removal is valid.

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

A company’s shareholders can appoint directors. This is usually done by passing an ordinary resolution in favour of the appointment (ie a majority of the shareholders agree to the appointment). Make sure to check the articles to see whether they impose any different requirements (eg requiring at least 75% of shareholders to agree to the appointment).

The Board of Directors (also known as the ‘Board’) 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.

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. A Senior employment contract may also be used to appoint an executive director. Non-executive directors are appointed using a Letter of appointment (LOA). This is a contract setting out the terms of the appointment. For more information on the types of company directors, read Different types of company director.

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.

Filing requirements on appointment

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. This must be done within 14 days of the appointment.

On the appointment of a new director, the company must also update its register of directors and register of directors’ residential addresses.

A company’s shareholders can always remove a director by following a formal process set by law. This generally involves the shareholders passing an ordinary resolution agreeing to the removal of the director (ie a majority of the shareholders agree to the removal). The LOA or service agreement 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, they might have legal rights in their capacity as an employee, such as unfair dismissal or discrimination.

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

Retirement by rotation

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.

Disqualification

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. For more information, read Disqualification of company directors.

Notification requirements on removal

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. This must be done within 14 days of the removal. The company’s articles may set out additional requirements on the removal of a director.

Additional formalities apply for public or listed companies.

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

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