Remove/Appoint Director

Remove/Appoint Director

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OVERVIEW

Both Companies Act and the Articles of a company contain rules in regard to appointing a director. Reading the articles is especially important in order to know all the requirements regarding the appointment of a director. Shareholders and Board of Directors can appoint directors. However, the rules regarding the same must be confirmed in the articles. Non-executive directors need a letter of appointment (LOA). It is a kind of contract stating the terms of appointment, also known as a service agreement. The agreement covers their employment status, office as director, and the relationship between these. Generally, the Board decides the terms of appointment. However, the law or a company’s Articles will take priority over the LOA or Service Agreement if there is a contradiction. Appointment of a director must be notified to Companies House.

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DOCUMENTS REQUIRED FOR REMOVE /APPOINT DIRECTOR

Contract of employment

Senior employment contract

Loan agreement

Board minutes

Share certificate

Shareholders agreement

REMOVING A DIRECTOR

A company’s shareholders can always remove a director by following the procedure given in the Act. A director can exercise his rights under The LOAN or Service Contract if this happens, but he can still be removed.
Often, the Articles, LOAN or Service Agreement might provide some conditions, which if violated, can lead to termination of directorship. It’s important to check what these documents say about removing a director. Sometimes directors can be removed just on the basis of these documents, and a shareholder’s resolution is not required.
When an executive director is removed, he may have some legal rights in his capacity as an employee, such as unfair dismissal or discrimination.
If a company compensates a director because they are removing him, it might require approval from the shareholders.
A company’s Articles often require directors to retire by rotation whereby one-third of them must resign from office at the company’s general meeting and can only continue in office if re-appointed by shareholders.
Individuals can be disqualified from acting as a director for up to 15 years if they fail to meet their legal responsibilities or become bankrupt.
Removal of a director must be notified to Companies House. Additional formalities apply for public or listed companies.
Removing directors from office can be tricky. If you have any doubts, ask a lawyer to check you are doing everything right.
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