Contractors' Questions: How to remove a company director?

Contractor’s Question: Can a director of a limited company be removed simply by filling in and returning Form TM01 to Companies House?

Expert’s Answer: I often advise companies who believe that a director can be removed from office simply by sending Form TM01 to Companies House. Unfortunately, this does not remove a director and is unlawful unless the correct steps have been taken beforehand.

The following procedure should be followed:

1. Look at the Company’s Articles (and any shareholders’ agreements) as these will set out certain requirements that your particular company must follow. They will also set out certain circumstances that will automatically lead to a directorship being terminated, which may include bankruptcy, absence, mental disorder, failure to take up or pay for shares, and others. Also, note whether there is a minimum number of directors needed, as you may need to replace the leaving director with someone else.

2. Consider tactics carefully and consider the various roles that the director holds. Take legal advice at this stage if you are uncertain of how best to remove someone.

3. Talk to the director and see if you can come to an agreement for them to resign. Take everything into account and see whether you can agree a payment package including payment for any shares they have.

4. Call a shareholders’ meeting to remove the director if the Articles don’t cover your particular situation and the director won’t resign voluntarily.

5. Once the director has been removed, hold a board meeting to formally record the resignation or record the reason the director has been dismissed (if not decided at a shareholders’ meeting).

6. Record the termination in the company’s Register of Directors. This is the formal registration of their directorship being terminated, not anything Companies House does.

7. Send Form TM01 to Companies House. This is how you update the public record of who your directors are. It is not this step that terminates the appointment.

8. Notify the company’s bank and insurers.

9. Change the company’s website and stationery if the directors are mentioned there.

The expert was Gary Cousins, business solicitor and founder of legal advisory Cousins Business Law.

Tuesday 22nd January 2013