As you begin forming a company, you’ll have to assign a number of important positions to worthy candidates. And one of the most important positions is that of a company director, which can be assigned any time after incorporation. Subsequently, the question: “Can a director be forced out?” is answered with a simple yes. Directors can resign or be removed by company members (shareholders or guarantors) at any time as long as they do not encroach set provisions in the Companies Act 2006, the articles of associationor a director’s service contract.
Before we get to the processes involved in appointing a director for your company, or answering the question “can a director be forced out?”, it’s vital to understand the role of a company director.
What Are the Roles and Responsibilities of a Company Director?
The Business Directory defines a company director as:
“An appointed or elected member of the board of directors of a company, who with other directors, has the responsibility for determining and implementing the company’s policy. A company director does not have to be a stockholder (shareholder) or an employee of the firm, and may only hold the office of director. Directors act on the basis of resolutions made at directors’ meetings, and derive their powers from the corporate legislation and from the corporate legislation and the company’s articles of association.”
The duties and responsibilities of a company director are outlined in the Companies Act 2006, the articles of association, and any service contract that might be effective between a director and the company.
According to the Companies Act 2006, company directors must:
Act Within Designated Powers
A company director must adhere to the company’s constitution and comply with the company’s policy and delegated tasks (including the articles of association and wider constitutional issues, such as shareholder/joint venture agreements).
Promote the Company’s Successes
Company directors must actively exercise the dissemination of the company’s values and success to garner longevity and company scalability.
Carry Out Independent Judgement
Company directors must use independent judgement, bearing the responsibility and accountability of making independent decisions. However, a company director must still obey the company’s constitution/agreement.
Consistently Exercise Reasonable Skill, Care, and Diligence
Company directors must observe consistent skill, care, and diligence to the same level as any other reasonably diligent employee.
Avoid Conflict of Interest
Company directors must avoid circumstances that could lead to a conflict of interest — particularly pertaining to property exploitation, information, or opportunity regardless of whether it would serve to benefit the company.
Reject Benefits from Third Parties
Company directors must not accept third party benefits. However, no infringement will be recognised if the acceptance cannot be regarded as something likely to cause conflict.
Declare Interests in Proposed/Existing Transactions/Arrangements with the Company
Company directors must declare the extent of any interest, transaction, or arrangement with the company (directly or indirectly) to the rest of the company directors.
Follow this link for an in-depth outline of the roles and responsibilities of a company director.
Who Is Eligible to Be a Company Director?
Before getting to the question of “can a director be forced out?”, it’s important to recognise who may be eligible for the role. The following can qualify as a company director:
- an individual (can be the company secretary, shareholder)
- a corporate body
- a partnership
- a group
- another limited company
- an organisation/business/charity
Conversely, a company needs to have at least one regular, natural director.
Who Is Ineligible to Be a Company Director?
The following are not permitted to hold the role of company director:
- a company auditor
- a banned company director (cannot be a director of another company while their forbid is still in place)
- individual under the age of 16 years
- an un-discharged insolvent
How Do You Appoint a Company Director?
“Can a director be forced out?” is a dissonant question to this section: how to appoint the worthiest director for your company.
Appointing a director is a rather straightforward task and has to be processed at Companies House, either online or by post; during or after incorporation:
The company’s first directors are appointed during the company formation. Their information is provided to Companies Houseon the relevant application form. You can register a new company and appoint the first directors with the use of Companies House form IN01, or you can complete an online application form during yourcompany set upthrough a formations company.
Company members decide who they want to appoint as a company director as well as the powers that this new director will possess.
Should the current directors be permitted to choose a new director, they will be expected to pass a resolution at a board meeting or in writing. Furthermore, a majority of the directors must vote in favour of the resolution. In case there are just two directors, both of them must accept the appointment.
After the appointment has been authorised, the company secretary or the present director will have to inform Companies House within fourteen days of the decision. The following information must be submitted to Companies House on the company formation application or the “appoint a director” form AP01:
- Appointment Date
- Title and complete name
- Old names
- Birth date
- Business profession
- Country of residence
- Home address
- Service address
If you choose to appoint a corporate director, then, as aforementioned, the company must have at least one other natural personwho is a director. In order to process this, you must submit the following details on form AP02:
- Name of company.
- Company registration number (also found through a Companies House search).
- Appointment date.
- Registered name and number of the corporate director.
- Registered office or principal address of the corporate director.
- Corporate director’s place of registration.
When a director is appointed during or after incorporation, his/her occupation will be requested. Since the role is mainly administrative and managerial, directors do not need formal qualifications, and incidentally, directors may have specific professions or business occupations in addition to their directorial role. Therefore, you can list a director’s occupation as a specific profession where applicable.
Can a Director Be Forced Out?
There are a number of reasons why one might ask, “can a director be forced out?” However, a company director’s termination, or indeed resignation, must adhere to the terms of the Companies Act 2006, the company’s articles of association, and any service agreement between the director and the company. And remember, the significance of at least one natural director comes to the fore if the sole director is being removed.
Can a Director Be Forced Out? Yes, Through Voluntary Resignation
If you request a director to take a voluntary resignation or he/she resigns in adherence to their contract, Companies House must be notified online or by post using Form TM01within 14 days of the resignation. The company’s statutory register of directors needs to be updated according to the resignation and subsequently, the public register will be updated in relation to the new circumstance.
Can a Director Be Forced Out? Yes, Under the Articles of Association Provisions
The model articles of association outline various provisions that require the immediate removal of a director in the following scenarios:
- A provision of the Companies Act 2006 or any other UK legislation prohibits a director from remaining in office.
- A director has a bankruptcy order against his/herself.
- A registered medical practitioner deems a director physically incapable of exercising their position as director.
Can a Director Be Forced Out? Yes,by Ordinary Resolution of Members
If the articles of association do not cover the reasons for a termination, then the shareholders may remove a director through the passing of a resolution. This is normally practised when the shareholders are discontent with a director’s performances or actions. As long as the shareholders do not violate any legislative or contractual agreement, an ordinary resolution with a simple majority vote will do the trick!
In order to do this, a Special Notice of at least 28 days before the vote is taken at a general meeting must be given to all shareholders. The director in question should also be notified in order to make representations and attend the meeting. If the majority vote in favour of the director to be removed, then form TM01 must be filed at Companies House within 14 days.
Can a Director Be Forced Out? Yes,Through Removal by Authority
The court, or another authoritative institution may remove a company director if he/she fail to fulfil their statutory duties and responsibilities, or if their conduct is judged to have been unfit or unethical; an official complaint may be made by a member of the public of another company member to the Insolvency Service. A “guilty” company director can also be disqualified by:
- Companies House
- Competition and Markets Authority
- Financial Conduct Authority
- A company insolvency practitioner
“Unfit” conduct is defined as:
- The continuation of company trading to the detriment of creditors (when a company is insolvent and unable to pay its bills).
- Failure of proper accounting documentation.
- Failure of proper filing of annual accounts and/or annual returns.
- Failure to process tax returns and/or pay tax liabilities to HMRC.
- Failure to co-operate with an insolvency practitioner or the Official Receiver
Can a Director Be Forced Out? Yes,Through Disqualification
Any company director who is a disqualified is not allowed to hold another company director position in any other company for the duration of their ban, which can be up to 15 years.
Additionally, disqualified directors are not permitted to take a similar position in a foreign company with UK links, be involved in forming, marketing or running another company, and he/she is not allowed to be a member (partner) in a Limited Liability Partnership (LLP). A violation can lead to a significant fine or imprisonment of up to 2 years.
Directors can be disqualified for:
- Failing to meet the minimum age requirement of 16 years.
- Declaring bankruptcy or involved in any bankruptcy proceedings.
- Are served with a Debt Relief Order.
- Continuation of trading during company insolvency (inability to pay its bills).
- Failing to maintain accurate accounting records.
- Failing to file annual accounts and/or annual confirmation statement at Companies House.
- Failing to pay taxes.
- Utilising company finances/assets for personal gain.
- Failing to fulfil statutory responsibilities in accordance with the Companies Act 2006.
Resigning as the Sole Director of a Company
If you’re the sole director of a company and wish to resign, you can appoint another director to run the company on your behalf. Alternatively, for a solvent company, you can sell the business and its assets to another entity or choose to dissolve it and sell the assets.
When it comes to removing or appointing a company director, you have to ensure that you are following the correct protocol and submitting the necessary details to Companies House. With the exception of a company director’s date of birth, you can amend any other information that has been registered with Companies House —often a straightforward task.
If a director’s date of birth is incorrectly registered, then the only way these details can be changed is by processing a replacement appointment form or, if the wrong date was added during incorporation, through the RP02A and RPCH01 forms.
Do you want to know how to appoint and remove a company director? Contact our dedicated company formations team now for expert advice and support for correctly amending your company director details!