How to appoint and remove company directors from office

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Appointment and removal of company directors

Introduction

This article explains how to appoint and remove company directors from office. We hope it will be useful reading for directors and shareholders of any private limited company across the UK.

We deal with the appointment of new directors in the first part of the article and in the second part, with the removal of directors from office.

Must a company have directors, and if so, how many?

Every limited company must have at least one director. If a limited company only has one director, that director must be an actual person - as opposed to another company. A public limited company or plc must have at least two directors.

Who appoints directors and what is the process?

The process for appointing new directors is usually recorded in the company's articles of association. It is not the same for all companies.

Most commonly, directors are appointed by the shareholders at the Annual General Meeting (AGM), or in extreme circumstances, at an Extraordinary General Meeting (EGM). The appointment is put to a vote, and passed if a majority of shareholders present agree.

Often the board may appoint a temporary director to fill a vacancy (if a director dies or resigns), until the next AGM takes place. At that meeting, the shareholders vote to make the appointment permanent.

Alternatively, the board of directors (or a committee overseen by the board) may be delegated the power to appoint new directors by the shareholders. The board may be able to make appointments at any time, but often the size of the board is limited by the articles of association, limiting new directorships only to be made on resignation of a previous member. Delegating the power to appoint may be convenient for shareholders, but does remove a key shareholder power.

The directors must notify Companies House within 14 days after a new director is appointed. The easiest way to do this is to use the CH webfiling service. Alternatively, form AP01 or AP02 could be used.

Net Lawman sells a pack to appoint a new director containing all the notices needed to appoint a director at an EGM.

Who may not be appointed a director?

A director may be an individual or another legal 'person' (such as a company). If the director is an individual, he or she may hold office provided that:


	he or she has not been disqualified by a court from being a director (a court can overturn previous disqualifications)
	he or she is not an undercharged bankrupt (unless allowed by a court)
	he or she is not be under the age of 16.

An appointment must comply with the company's articles of association. These can contain whatever rules the shareholders agree on, for example, limitation of the number of family relatives who are also directors.

Directors' service contracts and employment agreements

Every director requires a director's service contract, which is an agreement that sets out what is expected in his or her role, and what the company will do in return. Executive directors will also require the terms of their employment to be set out, usually in the same document. This is a requirement by law. Non-executive directors are not employed (although they may be paid for their services) so they do not require these additional employment terms.

You may be interested in Net Lawman's Executive directors service agreement (employment contract) or the Non-executive director's service agreement.

Removing directors

A director may only hold the position provided he is willing, able and competent to do so. If he stops being so, he may be removed. Reasons for being removed could be:


	disqualification under the law
	bankruptcy
	mental disorder under the Mental Health Act 1983
	breach of his service contract
	his resignation from office or
	absence from a board meeting for a consecutive period of six months

A director may be removed from office in one of the following ways:

Removal by ordinary resolution

Shareholders of a company always have the right to remove a director from office at any time. This right cannot be taken from them by anything contained in the director's service contract or in the Articles of Association.

Any member wanting to propose a resolution to remove a director must give the company 'special notice', (a formal notice setting out their request) at the registered office of the company at least 28 days before a general meeting. The directors may try to frustrate the members' intention by not calling a general meeting at all.

In this situation, a member could either request an annual general meeting providing they own at least 5% of the shares in the company or, if they own at least 10% of the shares in the company, request an extraordinary general meeting and thus fix the agenda for that meeting.

Whenever the company receives special notice of a resolution to remove a director, the board must ensure that the director concerned is informed immediately. That director has the right to make written representations to the members and can circulate a statement in writing to them. They can also speak at the meeting.

Net Lawman sells a Pack to remove a director by ordinary resolution containing all the notices needed to appoint a director at an EGM.

Retirement by rotation

At each subsequent annual general meeting of the company, one-third of the total number of directors must retire from office and be subject to re-election. Shareholders can remove a director from the board when the director is subject to re-election. Executive directors, however, are exempt from this requirement.

Disqualification by the court

The court has power to disqualify individuals from holding the office of director. It can also reinstate them.

Usually, to be disqualified by a court, a director must be shown to be not competent to hold the post. Having committed a criminal offence related to running a company, or persistently not complying with rules for filing documents at Companies House are good examples why a director might be disqualified.

Under the company's articles of association

A company's memorandum and articles of association can also specify when directors should be disqualified, although only in relation to that company. Examples might be if the director is unable to carry out his or her duties sufficiently.

Process to be followed when someone stops being a director

The remaining directors must notify Companies House within 14 days of the removal, retirement or resignation of a director. Form TM01 could be used, or the CH webfiling service.

Otherwise, the procedures to be followed are as set out the company's articles of association.

If by chance you find any error in this information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes:
Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.