Jennifer Adams looks at the procedure by which a director leaves a company – whether that director goes on his own accord for his own reasons, is asked to leave or is forced to leave through disqualification.
The vast majority of directors leave a company amicably through resignation rather than being forced to leave but they may have no choice is disqualified (for detail on disqualification of directors see the article Directors Disqualification: Get the details right.
Method of resignation
Whatever the reasons for leaving, there should be a set procedure in place to cover both the company and the relevant director. Ideally there will be a directors' service contract containing the necessary provisions, inter alia, any notice period, the agreement that the resigning director be required to sell any shares held on resignation and an obligation to resign as a director upon any termination of employment. If it is wished that the resigning director remains an employee after resignation, then that can also be included in the contract.
In small private limited companies invariably there will be no director's service contract and unless specific provisions can be found in the company's Articles requiring the director to give a period of notice, a director may resign at any time just by giving notice to the company. Ideally, the notice should be in writing, but this is not specifically required under the Companies Act 2006.
Whilst now relatively unusual, in some cases a company’s Articles can require the board to formally approve any director resignation but the usual procedure is for the leaving director just to give notice in writing and leave after a set notice period.
Model Articles Clause 18 states that "a person ceases to be a director as soon as…
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- Forced removals
- Practicalities of removal by ordinary resolution with special notice
- Bushell v Faith clause
- Alternative to s168 CA 2006
- The practicalities following a resignation
- When all directors resign
Although no board resolution is technically required upon a director resigning, it is good practice to record that the resignation has occurred at the next directors' board meeting.
About Jennifer Adams
Jennifer Adams is Consulting Editor of AccountingWEB and is a professional business author specialising in corporate governance and taxation. She runs her own accounting and consultancy business with offices based in Surrey and Dorset.