Our team regularly advises on director removal - for either the director in question or those looking to remove that person. Whatever your situation - we can help.
A limited company is run on a day to day basis by the directors, who make all of the general decisions required in running the company.
In a small company where there may be shareholders and directors who are the same, then shareholders will have a greater control over the company by way of their directorship and they will be able to access information concerning the company to a far greater extent than if they are simply shareholders.
However, generally shareholders’ control over the company is limited to certain powers. Shareholders may have some power over directors’ actions by exercising their voting rights in a shareholders meeting. In this way they can vote on issues that affect the company. However, these are inevitably limited to issues such as structural alterations to the company or amending the company’s constitution etc. They do not have the power to effect day to day decisions. Read out other web pages on shareholders ability to manage the company.
Shareholders powers to remove a director
- in order to remove a director, shareholders must pass an ordinary resolution at a meeting of the company;
- this means that a majority over 50% shareholding needs to vote in favour of the removal;
- the process however of notification is quite complex, and must be followed very carefully to ensure that there can be no repercussions by a director challenging their removal later on.
Reasons for removal
There does not need to be any breach of directors’ duties in order for shareholders to remove a director. This remedy may be particularly useful to a majority shareholder who doesn’t get on with one of the directors.
However, there are matters that need to be considered before undertaking this remedy. We would highly recommend that if you are considering using this process that you take legal advice on the procedure to ensure that it is followed correctly. At Francis Wilks & Jones we frequently act for shareholders who wish to remove a director, and can advise on the legal ramifications of how to do this, and what is required to effect this properly.
A director is usually also an employee of the company. If a director is successfully removed by a shareholder vote, then the company must also deal with the removal of the director as an employee. This means ensuring that the director’s employment rights are dealt with correctly to avoid a claim against the company by the director for unfair dismissal.
Compensation to directors
Following the removal of the director, if the director is compensated for their loss of office, any payment must be approved by shareholders before being made to the director.
Shareholders will need to pass a majority resolution that this payment has been approved. In order to do this, the shareholders must be provided with a memorandum clarifying the payment(s) to be made to the director, and the reasons for the payment. Once a resolution is passed, then a clear record should be kept in the company’s books and records of the reason for the payment and the shareholders resolution approving the same.
If you are a shareholder wanting to remove a director, or if you are director facing a vote for removal, then please contact one of our expert team at Francis Wilks & Jones to talk through all of the issues and options. Our team have many years of experience in these proceedings and can walk you through the correct procedure and discuss the ramifications with you.