When running a limited firm, you may need to appoint new company directors or remove existing ones at some point. There may be several reasons for this. For instance, you might want to bring in another business partner in case a current director fails to fulfil their duties in an effective manner or wants to retire.
Irrespective of the actual reason, the process of the appointment and removal of directors of a limited firm is quite simple in the majority of cases. This can even be done online without paying a penny.
Is There A Minimum Requirement For The Number Of Directors A Company May Have?
As per the government regulations, a company must have at least one director. Typically, there’s no maximum limit to the number of guarantors or directors a limited firm may have.
Nonetheless, a few companies like to include provisions within their model articles that restrict the total number of directors a company may have at any one time.
Also, remember that you are not allowed a single director that’s another corporate body or firm. But you are free to appoint a corporate entity as long as you have one or more human directors. Limited firms in the public sector are required to have no less than two company directors at any given moment.
If you only have a single company director and they are removed or retire, you must appoint another director prior to the date that the existing one leaves.
Criteria For Appointing A Limited Company Director
The Director May Be A Human Or A Corporate Body
As of now, there’s no particular requirement in terms of qualifications to become a director, however, it is necessary to make sure the individual is competent enough to fulfil the required duties successfully.
For A Human Director, The Criteria Below Must Be Met
- The person is 16 years old or more and not an undischarged bankrupt.
- The person was not previously disqualified as a company director.
- He/she must not be facing any restrictions by the UK government or acting as a company auditor.
- The person satisfies other conditions as mentioned in the model articles of a company along with shareholders’ agreement.
Who Can Appoint/Remove A Company Director?
The model articles state all the guidelines for appointing as well as removing directors of a limited firm. Therefore they must be your initial reference point prior to any other considerations. Typically, shareholders are responsible for the appointment and removal of company directors at a company meeting.
Since shareholders are considered as the true owners of a limited organisation, they’re responsible for making such important crucial decisions whenever necessary. In most limited firms, nonetheless, shareholders might give the right to appoint and remove company directors to present board members.
Appointing Your First Company Directors
They’re appointed whilst the company is still being formed by the first shareholders/guarantors of an LP. All of the information about the directors is added to the company’s individual Director Registers.
How To Replace Or Appoint Additional Company Directors?
If you would like to appoint more company directors after the formation of your company, the form AP-01 or AP-02 must be completed and the shareholders or company directors (if allowed) must resolve to do so. The completed form must be sent to the official registrar within 14 days of the appointment using the internet or post.
Appointing Human Directors
In order to appoint human company directors, it is important to complete form AP01. For this, the information below must be submitted:
Company name and number
Date when the directors were appointed
The following details about the new directors:
– Full forename(s) and surname
– Previous name(s)
– Residential state/country
– Business type (if any)
– Correspondence address
– Residential address
After you submit the form, the director’s appointment will be added to the public record within 24 business hours. If you choose to send it by post, it may take slightly longer. There are no charges payable for appointing a new director.
How To Appoint Another Corporate Body As A Company Director
This is possible as long as you have one or more human directors in the company. After the appointment has been approved by the shareholders, the form AP02 must be submitted along with the details below:
Full name of your company
Date when the corporate body was appointed as the company director
Details about the corporate body:
– Full name
– Official address
– If the corporate body is registered inside or outside the EEA
For EEA firms:
– Registration country and number
For companies not belonging to EEA:
– Governing act and reg. no
– Registration country
– The legal form of a corporate entity
Confirmed consent to act as a company director
Because of the proposed prohibition on corporate directors, it’s important to contact the registrar for additional support or you may also ask your solicitor prior to appointing a new firm as a director.
How To Remove A Director?
The need to remove a director might arise for multiple reasons, such as voluntary retirement or resignation, accidental death, serious illness, bankruptcy, court disqualification, or breaching service proposals.
The actual reason for the removal of a company director will determine the procedure a company must follow. As of now, there are 3 types of procedures:
1. Removal under model articles
2. Removal by disqualification
3. Removal by shareholder resolution
Removal Under Model Articles
A number of companies state in their model articles several circumstances where a director may be removed from their position. The model articles must also outline certain undertakings for removing directors, which includes a provision stating a company director can be removed after the agreement of most shareholders.
Under Article 18, an individual no longer holds the position of a director when:
- They’re officially declared as bankrupt.
- A registered health expert treating the individual provides written feedback stating the person is physically/mentally incapable of fulfilling their duties as the director and might stay so for more than 90 days.
- Any provision under the 2006 Companies Act prohibits them from holding the position.
- As a result of poor mental health, the person is partly/entirely prevented by the court from independently holding any rights/powers that they would otherwise be given.
- The director notifies a company that they’re resigning their position, and the decision has been made taking into account all the company terms.
Amendments To Articles Of Association
In 2013, the Mental Health Act amended articles of association to eliminate provision 18(e) which permitted termination of the appointment of the company director in accordance with mental health. Companies formed prior to 2013 do not need to eliminate this provision, however, this can be done by adopting the current articles of association.
Removal By Shareholder Resolution
In case a company doesn’t have a specific procedure within its model articles, provisions 168 & 169 of the 2006 Companies Act offer a statutory process allowing company shareholders the right to remove a company director through an ordinary resolution during the company meeting.
Steps to follow:
- Company shareholder(s) pass a resolution for removing the director prior to the expiry of his/her term in the office by sending a ‘special notification’ to the firm.
- After their notice is received, the company directors are required to schedule a general meeting allowing the shareholders to pass their vote on the given resolution. There should be a gap of no less than 28 days between the date when the general meeting is held and the special notice.
- Notification of the meeting needs to be sent to each shareholder along with the company director who is about to be removed.
- The company director can make written representations before the company meeting. During the meeting, the director facing removal might speak or make additional representations.
Shareholders are not required to provide a reason for removing the director, however, one is typically given.
Among the most typical reasons for removing a company director through ordinary resolution are:
– Ineligibility under the government regulations
– Issues associated with mental health under the 1983 Act
– A director breaching the stipulations of their contract
– The director’s own decision to retire or resign from the office
– Missing the board meeting for 6 months consecutively
If a company director is being removed because of breaching the service contract, shareholders’ terms of agreement, or employment guidelines, he/she is free to take the case to court.
A company director cannot be terminated through a written resolution of company shareholders.
Removal Due To Disqualification
The 1986 Disqualification Act gives the right to disqualify an individual from the position of a company director if they are unable to fulfil the legal duties of their role, either due to fraudulent trading, or ‘unfit’ behaviour, including:
- Permitting a company to keep trading despite knowing its financial status.
- Failing to keep suitable accounting records.
- Continuously failing to submit accounts to HMRC and the registrar in a timely manner.
- Wilfully taking or paying more salaries, or other funds knowing the company is insolvent.
- Failing to submit confirmation statements at the end of the year.
- Not being able to pay VAT, or Corporation Tax and/or submit tax returns.
- Taking personal benefit of the company properties or other assets.
A company director is automatically disqualified if he/she faces restrictions from a DRO or is made bankrupt and needs to be removed without delay.
There may be several bodies that may disqualify a company director, including the CMA, court, Insolvency Service, company insolvency experts, and the SFO.
You can use any of the above authorities to report a company director if you feel the individual is unfit to hold the position.
Throughout the period of disqualification, which may extend up to 15 years, the individual in question may be restricted from his/her position as a director. Also, they cannot be involved in any way when it comes to managing any company within the United Kingdom or an overseas firm with operations in the United Kingdom. The person in question will not be able to form or promote a company. Additionally, the disqualified company director will not be able to appoint one of their family members or friends to take their place to continue operating the business indirectly.
Removing A Person Who Holds The Position Of Both A Company Director As Well As A Shareholder
Removing an individual who is holding both of these positions doesn’t typically affect their rights or position as a company shareholder.
If such a possibility arises, you might want to propose negotiations for purchasing the shares of the disqualified director. Some companies like to add a provision in their model articles stating that any shareholder who is disqualified from the position of a director is required to transfer their shares back to partners of the company.
Retirement As A Part Rotation
You can also find companies that include a clause in their model articles that make it obligatory for company directors to retire as a part of the company’s rotation policy. For example, one-third of members who are a part of the board of directors need to resign at every annual meeting. The directors who retire may then be re-appointed by shareholders based on their performance. A company director can, therefore, be disqualified only because he/she is not re-elected. The provision is not very common among small limited companies in the private sector. You can, however, see it in PLCs and large corporations.
Alerting Companies House About The Appointment And Disqualification Of Company Directors
The registrar must be notified about the appointment of first directors during the process of company formation itself. Companies House must also be alerted if a company makes any subsequent appointments of directors by submitting form AP-01 (or form AP-02 in case of corporate directors) via post or online within two weeks of the appointment.
Once the current director is disqualified from their position, you need to notify the registrar within two weeks of the date when the person leaves their position.
You must fill out form TM-01 along with the details below:
Full name and number of the company
The current information relating to the director that’s included in the official registrar:
– Corporate identity or surname
– Date when the appointment is about to be terminated
You may either fill in the form online or send it by post.
Those reporting the disqualification of a company director must include a copy of the resolution along with form TM-01.
You must also update the company’s independent statutory Directors’ Register to show the details of the director in question along with the date of termination or appointment.
In case the new director holds the position of a PSC, a notification about the upcoming confirmation statement must be sent to Companies House. In addition, the PSC register of the company held at the office address needs to be updated.
A company, while appointing a new director, is required to accept the ‘Consent to Act’ statement in place of a director. To do this, you must check the applicable box beside the Consent to Act agreement on either form AP01-02 or form IN-01.
To make sure the new directors agree with all the clauses, Companies House is likely to alert them that their appointment has been included in the official register. In case the newly appointed director(s) are unable to agree with the act, they may apply to remove the appointment from the public directory.
Steps A Company Director May Take To Prevent Their Disqualification
If a person is being disqualified from their position due to unfair conduct, they may face serious consequences. In addition to being terminated from the current company, they will also not be able to form a new one independently. Not to mention they will lose a major source of their income.
Due to the ramifications of the disqualification of a director being so severe, it’s important that a person facing the possibility of termination consults with a specialist legal advisor to get assistance in a timely manner.
After consulting with their client, a solicitor can attempt to explore the possibility of defence. For this, the person in question should be able to provide all of the applicable evidence. The primary objective of the defence will be to prove in the court that the person facing disqualification is not ineligible to be the director of their current company, nor have they acted negligently whilst performing their day-to-day duties.