If a director of a limited company wishes to resign from their position then both the director and company must follow the correct procedures laid down in the Companies Act 2006 and in the company’s formation documents. In this article we will explain the various ways in which the role of a director can be terminated, how to resign as a director, the steps to be followed by the company, what happens at Companies House when a director resigns and the ongoing legal liabilities of directors once they have left.
How can the employment of a company director be terminated?
A directorship within a company can end in a number of different ways, including by:
- Vacation of office under the articles of association.
- Vacation of office by law.
- Removal under section 168 of the Companies Act.
- Vacation of office under a service agreement.
- Vacation of office under a court order.
If a director resigns from his-or-her position then s/he is giving notice that s/he intends to leave the company.
Giving notice of resignation as a company director
A person can resign as a director of a limited company by giving the required form of notice, i.e. a letter of resignation. It is important to check the company’s articles of association first to see:
a) whether there is a specific method of resignation required and:
b) whether there is a set minimum notice period.
Although a director may resign by typing a simple e-mail to the company’s board, it is preferable to draft and submit a formal letter of resignation. A letter of resignation will normally include the following information:
- A statement of resignation – e.g. “I hereby resign from my office as a director and as an employee of the Company with immediate effect”. Alternatively, you may wish to add an “effective from” date.
- An acknowledgement and waiver of claims – e.g. “I hereby acknowledge and confirm that I have no claim or right of action of any kind for compensation or otherwise against the company or any of its officers or employees in respect of the termination of my employment or otherwise. To the extent that any such claim or right of action exists or may exist, I irrevocably waive such claim or right of action and release and forever discharge the company, its officers and employees from any and all liability in respect thereof”.
- Clarification of governing law and jurisdiction – e.g. “This letter and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the law of England and Wales. The courts of England and Wales shall have [exclusive OR non-exclusive] jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this letter or its subject matter or formation”.
- The name and signature of the director.
- The name, address, occupation and signature of a witness.
If you plan to send your letter of resignation by post then it ought to be sent to the company’s registered address. It is advisable also to use special or recorded delivery, either of which requires a signature by the receiver. This will provide clear evidence that notice was given and received.
As a director, your resignation is effective in accordance with its terms, regardless of whether it is accepted by the company. One possible exception to this is if the company’s articles of association contain a specific provision requiring acceptance by the board. Once you have served notice of your intention to resign as a your resignation cannot be withdrawn without the consent of the company.
The articles of association or shareholders’ agreement may include a process for resignation as a director and what to do with any shares that you hold. Depending upon the contents of these formation documents you may be required to offer your shareholding to the other shareholders. If this is not stated, or if they do not want the shares, you may be allowed to keep them. Whether you wish to retain your shares may depend on a range of factors, including the company’s performance, whether you can receive dividends and whether you retain any voting rights.
Holding a board meeting and recording the director’s resignation
As a limited company, it is advisable to accept and record formally the resignation of the director in the minutes of your next board meeting. Doing so will ensure that the company remains compliant with its record-keeping obligations. You will need also to remove the director from your register of directors. Under section 46 (10) of the Companies Act all companies must keep an up-to-date register of their directors, which must be stored and available for inspection at the company’s registered office.
Informing Companies House of the resignation
The company is legally required to inform Companies House when a company director resigns. Form TM01 (Terminate an appointment of a director) should be submitted to Companies House within 14 days of the effective date of the director’s resignation. Form TM01 is one of the many forms that can be completed online using the Companies House WebFiling system. It is important to note that it is the responsibility of the company to submit form TM01, not the resigning director. Indeed, form TM01 may well be rejected if it is prepared and submitted by the resigning director.
If the resigning director is the sole director of the company then a replacement must be provided. If a replacement director is not provided then Companies House will strike the company from the register of companies.
Are resigned directors shown on the Companies House public record?
Yes, Companies House retains the names of previous directors but changes their status. As Companies House states:
“Information about the officers of a company remains on the public register for the lifetime of the company. This information will be available to the public as long as the company is active. This includes details of all resigned officers and also applies to dormant companies”.
This means that if a person carries out a search of the Companies House website they will see the names and details of any directors who have resigned, but their status will be changed from “active” to “resigned”. Even though a director has left the company the public record will still show his-or-her:
- Correspondence address
- Country of residence
- Date of appointment
- Date of resignation
- Former role
- Listed occupation
Companies House does not require you to use your home address, hence you can apply to change this if you wish.
What are the ongoing liabilities of a resigning director?
Having resigned as a company director you may still have ongoing liabilities as follows:
- If you breached the service agreement by not providing sufficient notice when you resigned then the company might be entitled to claim damages from you for breach of contract.
- Under chapter 2 of the Companies Act 2006 a person who ceases to be a director still has a duty to avoid conflicts of interest regarding “the exploitation of any property, information or opportunity of which he became aware at a time when he was a director”. The former director has also a duty not to accept benefits from third parties with regard to “things done or omitted by him before he ceased to be a director”.
- If the company becomes insolvent at a future date then the conduct over the preceding three years of all company directors, past and present (including those who have resigned), may be investigated. If any wrongdoing or failures are discovered then even previous directors may be held liable.
- You will not normally be liable for future company decisions, acts or omissions that occur after your resignation. If you become a shadow director, however (i.e. a director who has resigned but still has some continuing influence over the company even after resignation), then you may still be held liable.
If you are planning to resign from your position as a director of a company, or if you represent a company that is dealing with a director who has resigned, do not be tempted to cut corners. By following the rules and process defined in the Articles of Association and Shareholders’ Agreement for the resignation of directors, and by making the necessary submissions to Companies House, you will remain compliant with the law. If you are unsure of the correct process or the scope of any ongoing liabilities then speak with a specialist in company law and company formations. They can explain how to resign as a director, how to handle the resignation process as a company and how to inform Companies House of the resignation, thereby providing reassurance that your mandatory legal reporting duties have been met.
We at Uniwide Formations can help with the appointment and resignation of directors, in addition to many other services including the registration of Limited Companies and Limited Liability Partnerships within the UK.