During the life of a company it is common for new directors to be appointed and others to leave. How directors may be appointed and terminated is set out in the Companies Act 2006 (CA 2006) and also within the company’s articles of association (articles).
Whether appointing or removing a company director, the correct rules and process must be followed. When it comes to appointing a director it is essential to understand how many directors a company must have, who appoints directors, who cannot be appointed as a director, the purpose of directors’ service contracts and how to seek formal approval, together with several further considerations.
When removing a director it is important to understand the available removal options and how to formalise the process with Companies House. Here, for directors and shareholders of a private limited company in the UK, we provide a guide on how to appoint and remove a company director.
Appointing a company director
Checks before appointing a company director
A number of points that must first be considered before adding a director to a company, the main ones being:
- Number of directors – In accordance with section 154 of the CA 2006, a private company in the UK is legally required to have at least 1 company director and a public company (plc) at least 2. Where a private company has only 1 director this must be a real person and not another limited company. The CA 2006 imposes no limit on the number of directors, although the number may be limited by the company’s articles. Before appointing a new director it is therefore important to check whether a limit has been set.
- Eligibility to become a director – A person may become a company director only if they are:
- 16 years or older (there is no maximum age).
- A legal person (a company or limited liability partnership may be a director) – this assumes that where a private company only has one director, they must be a natural person (not a company).
- Not prohibited or disqualified from becoming a company director (e.g. if they are an undischarged bankrupt, subject to a moratorium period under a debt relief order, or convicted of an indictable offence in connection with the promotion, formation, management, liquidation or striking off of a company).
- Suitability to become a director – it is important to consider whether the candidate has the professional and personal skills and qualities needed by your company to perform the role of a director in a company and that this is agreed by the board of directors.
If there is any uncertainty regarding someone’s suitability and eligibility when adding a director to a company then it is advisable to seek the guidance and expertise of a specialist in company law and formation. Doing so will help you avoid a situation whereby a director is appointed against the provisions of the CA 2006 and your company’s articles.
The process of appointing a company director
Once the above checks have been performed the following should be carried out to formalise the appointment of the director:
- Draft a service contract – The director’s service contract will typically set out details of the appointment including dates, pay and duties, and must be drafted and be kept available for inspection at the company’s registered and “Single Alternative Inspection Location” (SAIL) address. This should be approved at the same time as gaining agreement on the appointment of the new director.
- Gain agreement on the appointment of a new director – The exact process for gaining agreement on appointing a director should be defined in the company’s articles of association. The existing shareholders are normally required to pass a majority vote at an Annual General Meeting (AGM) as soon as possible. In some cases it may be necessary to do this at an Extraordinary General Meeting (EGM).
- Complete and file the AP01 form with Companies House – Form AP01 or AP02 must be filed with Companies House within 14 days of the appointment of a new director. Form AP01 requires the following:
- company name
- company registration number (CRN)
- date of appointment
- title and full name of the new director (all forenames and surname)
- any former names of the new director
- date of birth
- residential address
- service address
Removing a company director
There are several circumstances, below, under which it may become necessary to remove a company director:
Removal in accordance with the company’s articles of association
A company’s articles typically provide that a director must be removed on the occurrence of certain events. Although the following list is not exhaustive, such events would include if:
- the director ceases to be a director
- the director becomes bankrupt
- the director is suffering from a mental disorder and is either admitted to hospital in pursuance of an application for admission for treatment under the Mental Health Act 1983 or is subject to a court order concerning a mental disorder.
- the director resigns: – Unless stated otherwise in a company’s articles of association, a director may resign office at any time by giving proper notice to the company. No notice period is required to resign as a director unless specified in the articles.
- a registered medical practitioner who is treating the director gives a written opinion to the company stating that he or she has become physically or mentally incapable of acting as a director and may remain so for more than three months.
Retirement by rotation
Retirement by rotation means that a certain number of directors (e.g. one-third) may be required to retire from office each year, after which new directors are elected (which may include retiring directors). When not re-elected a director is effectively removed from the company.
Disqualification may occur where a director is subject to a disqualification order by a Court, for example:
- if convicted of an indictable offence
- if found to be persistently in default when it comes to company filings
- if found guilty of fraud
- if found guilty of failure to pay tax (including corporation tax)
- if found to have misused company finances
- if declared bankrupt
A director can also be removed following a majority vote by shareholders (a single majority shareholder can remove a director). It is important to check the terms of the director’s service contract and shareholders’ agreement before carrying out such a vote to verify whether the director may have a claim for damages. In carrying out a vote to remove an existing director, no reason for the removal need be given in the resolution.
Any member who wants to propose a resolution to remove a director must give the company at least 28 clear days’ notice (special notice) before the general meeting.
The process of removing a company director
When you have the necessary approval to remove a director, this must be formally updated with Companies House. Before doing so, it is important to check your company’s articles to see whether there are any additional steps that you must take. To remove a company director with Companies House, you must complete and file form TM01 online. This can be completed as a Companies House Web filing, making the process quick and efficient. When completing TM01 you will need to enter the following details:
- company name
- company registration number (CRN)
- date of termination
- director’s title and full name (all forenames and surname)
- date of birth
- signature on behalf of the company
Whether you need to appoint or remove a director, it is essential that this is done in accordance with the CA 2006 and the company’s articles of association. A situation whereby the appointment or removal of a director is not legally valid can cause complications for the individual, company and remaining directors. To ensure that the process is completed properly, we recommend that you use the services of a specialist in company law and formation who can handle the whole process on your behalf.
Uniwide Formations specialises in the registration of limited companies and LLPs. As professional business service providers, we offer a wide range of related services and can advise you on all aspects of a director’s appointment/resignation and filing.