Appointing and removing limited company directors

There may come a time during the life of your limited company when you need to appoint a new director or remove an existing one. Whether you’re bringing in a new business partner or an existing director resigns or retires, you need to follow specific procedures when appointing and removing limited company directors.

Director Appointment and Resignation Service

The rules and procedures for appointing and removing limited company directors are stated in the articles of association. This should be your first point of reference before taking action. Typically, directors are appointed and removed on the authority of shareholders or guarantors (members) at a general meeting.

Members are the owners of a company, so they get to make these types of important decisions that occur infrequently. The proposed resolution to appoint or remove a director is presented to members at a general meeting or in writing and put to a vote. The resolution is passed if the required majority (above 50%) of votes are cast in favour of the proposal.

In many companies, however, members may delegate the power to appoint and remove directors to the existing board of directors.

Appointing the first directors

The first directors are appointed during the company formation process. They are chosen by the subscribers (i.e., the members who subscribe to the memorandum of association and set up the company) and named on form IN01. This is the company registration form that you submit to Companies House.

The directors automatically assume office on the date of incorporation. Their information is added to the public register of companies. You must also include their details in your company’s own Register of Directors and Register of Directors’ Usual Residential Addresses, which should be kept at your registered office address.

Appointing new directors after company formation

If you need to replace a director or appoint an additional director after your company has been incorporated (registered), the directors (if permitted) or shareholders will need to complete form AP01 or AP02. This form should then be sent to Companies House within 14 days of the appointment. You can send it by post or you can submit it online using Companies House WebFiling service or Quality Company Formations’ free Admin Portal.

Appointing a human person as a director

To appoint a human person as a director, you should complete form AP01. You will need the following information to hand:

• Company number
• Company name in full
• Date of director’s appointment
• New director’s details:
  – Title
  – Full forename(s)
  – Surname
  – Former name(s)
  – Country/State of residence
  – Nationality
  – Date of birth
  – Business occupation (if any)
  – Service/correspondence address
  – Usual residential address
• Confirmation of ‘Consent to Act’ as director

Difference between board resolutions and board minutes

If you submit the form online, the appointment will be recorded and updated on the public register at Companies House within 24 hours of receipt. If you send it by post, it will take longer. There is no fee for appointing a new director.

Appointing another company as a director

It is possible to appoint another company as a director of your limited company, provided that at least one human director is also in office. Once the appointment has been approved by the members or board, you will need to complete form AP02 ‘Appointment of a Corporate Director’ with the following information:

• Company name and number
• Date of corporate director’s appointment
• New corporate director’s details:
  – Name
  – Registered address
  – Whether the corporate director is registered within or outside of the European Economic Area (EEA)
• For EEA companies:
  – Country of registration
  – Registration number
• For non-EEA companies
  – Legal form of a corporate body
  – Governing law
  – Country of registration
  – Registration number
• Confirmation of ‘Consent to Act’ as director

Due to the proposed ban on corporate directors, we would strongly advise contacting Companies House for further guidance or consulting your solicitor before appointing another company to your board of directors.

Removing a limited company director

The removal of a limited company director may arise for any number of reasons, such as voluntary resignation or retirement, illness or death, bankruptcy, disqualification by the Court, or a breach of service contract.

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The reason for a director’s removal will dictate which procedure the company should follow. There are three procedures:

1. Removal under the articles of association
2. Removal by ordinary resolution
3. Removal by disqualification

Removal under the articles of association

Most companies will outline in their articles a number of circumstances under which a director can or must be removed from office. The articles should also set out certain procedures for the removal of directors, including a provision that a director may be removed by majority agreement of the members.

Article 18 of the Model articles of association provides that a person ceases to be a director as soon as:

• That person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law.
• He or she is declared bankrupt.
• A composition is made with that person’s creditors generally in satisfaction of that person’s debts.
• A registered medical practitioner who is treating that person gives a written opinion to the company stating that he or she has become physically or mentally incapable of acting as a director and may remain so for more than three months.
• By reason of that person’s mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which he or she would otherwise have.
• The company receives notification from the director that he or she is resigning from office, and such resignation has taken effect in accordance with its terms.

Amendments to Model articles

On 28th April 2013, the Model articles were amended by the Mental Health (Discrimination) Act 2013 to remove provision 18(e) that allows for the termination of a director’s appointment on the grounds of mental health. This provision is not contained in the articles of any company formed after that date.

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Existing companies that were formed prior to that date do not have to remove the provision from their articles, but they can do so by amending their articles or adopting the newer Model articles.

Removal by Ordinary Resolution

If a company does not have a set process enshrined in its articles, sections 168 and 169 of the Companies Act 2006 provide a statutory procedure that enables shareholders to remove a director by ordinary resolution at a general meeting. The following steps should be taken:

• A shareholder proposes a resolution to remove a director before the expiration of that director’s period of office by giving ‘Special Notice’ to the company.
• Upon receipt of this notice, the board of directors should call a general meeting of the shareholders to vote on the proposed resolution. The date of the general meeting must be at least 28 days after the date on which the company receives the special notice.
• Notice of the general meeting must be sent to all shareholders and the director facing removal.
• The director is entitled to make written representations prior to the general meeting. At the general meeting, the director in question may speak and make further representations.
• The shareholders will cast their votes for or against the proposed resolution. The resolution is passed if a simple majority (more than 50%) of the votes cast are in favour of the director’s removal.
• There is no need to give a reason for the director’s removal, but one is normally provided. The most common reasons for seeking to remove a director by ordinary resolution are:
  • Disqualification under the law
  • Bankruptcy
  • Mental disorder under the Mental Health Act 1983
  • Breach of his or her service contract
  • Director’s resignation from office
  • Absence from a board meeting for a consecutive period of six months.
• If removal is in breach of employment law, the director’s service contract, or the terms of any shareholders’ agreement, the director may have the right to damages if he or she chooses to take the matter to court.

It is not possible to remove a director by way of a written resolution of the shareholders.

Removal by disqualification

Under the Company Directors Disqualification Act 1986, a director can be disqualified (banned) if they fail to meet the legal responsibilities of the role, either through wrongful trading, fraudulent trading, or ‘unfit’ conduct, which includes:

• Allowing a company to continue trading when it’s known to be insolvent (i.e. unable to pay its debts)
• Not keeping proper company accounting records
• Repeatedly failing to send accounts to Companies House and/or HMRC on time
• Deliberately paying and/or taking excessive salaries, bonuses, and other funds when the company is insolvent
• Not filing annual confirmation statements
• Continuing to take credit when there is “no reasonable prospect” of paying these creditors
• Failing to submit tax returns or pay Corporation Tax or VAT owed by the company
• Using company finances or assets for personal benefit

If a director becomes bankrupt or faces restrictions from a Debt Relief Order, he or she is automatically disqualified and must be removed immediately.

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There are a number of bodies that can move to have a director disqualified, such as Companies House, The Insolvency Service, the Competition and Markets Authority (CMA), the Serious Fraud Office, the Courts, and a company insolvency practitioner. You can report a director to one of these authorities if you suspect he or she is unfit to remain in office.

During any period of disqualification, which can last up to 15 years, the person in question is prohibited from acting as a director. Furthermore, he or she cannot be directly or indirectly involved in the management of any UK company or an overseas company that has connections with the UK. This includes the formation and promotion of a company, meaning that a disqualified director cannot simply appoint a friend or family member in his or her place and continue running the business ‘behind the scenes’.

Removing a director who is also a shareholder

Removing a director who is also a shareholder of the company does not usually affect that person’s position or rights as a shareholder. In such circumstances, you may wish to propose negotiations to purchase the removed director’s shares. Some companies include a clause in their articles of association stipulating that any shareholder who ceases to be a director must transfer his or her shares back to the company.

Director retirement by rotation

Some companies include a provision in their articles that require directors to ‘retire by rotation’, meaning that one-third of the board of directors must resign at each annual general meeting. These directors are then subject to re-appointment by the shareholders. A director can, therefore, be removed simply by not being re-elected. This is an unusual provision for small private companies but is more common in large corporations and public limited companies.

Notifying Companies House of director appointments and removals

Companies House is notified of the appointment of the first directors when form IN01 is filed during the company formation process. You will inform the Registrar of any subsequent appointments by filing form AP01 (or form AP02 for corporate directors) by post or online within 14 days of the appointment.

Understanding the confirmation statement and PSC register

Following the removal of an existing director, you must notify Companies House within 14 days of the date on which he or she ceases to be a director. To do this, you will need to complete form TM01 with the following information:

• Company number
• Company name in full
• Director’s current details held on the Companies House Register
  – Month and year of birth
  – Title
  – Full forename(s)
  – Surname/Corporate name
  – Date of termination of appointment
• ‘Consent to Act’ statement

You can fill out the paper version of the relevant form and send it by post, or you can complete it online via Companies House WebFiling service or Quality Company Formations’ free Admin Portal. If you are reporting the removal of a director, a copy of the resolution should also be included with form TM01.

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The company’s own statutory Register of Directors’ Usual Residential Addresses must also be updated to show any new or removed director’s details and appointment/termination date.

If any new director is a Person with Significant Control (PSC), Companies House must be notified on the next confirmation statement (previously the annual return). You must also update the company’s own PSC register that is held at the registered office address.

Consent to Act as a company director

During the appointment of a new director, the company must agree to the ‘Consent to Act’ statement on behalf of the director(s). This is done by checking the box next to the Consent to Act statement on form IN01 or form AP01/AP02. It replaced the previous procedure of providing a signature on paper forms and a unique authentication code on electronic forms.

To ensure that all newly appointed directors have indeed agreed to their appointment, Companies House will write to them to make them aware that their appointment has been filed on the public register. If an appointed director did not consent to act, he or she can apply to have the notification of the appointment removed from the public register.

How many directors can a company have?

Every private company limited by shares or limited by guarantee must have at least one director. There is usually no upper limit, so you can normally appoint as many directors as you want or need. However, some companies include a provision in their articles of association to limit the number of directors they can have at any one time.

If a company has only one director, that director must be a human person. You cannot have a sole director that is another company/corporate body, but you can appoint a corporate director if the company already has at least one human director in office. Public limited companies (PLCs), on the other hand, must have at least two directors at all times.

Your company must never be without a director. If your company has only one director and they are removed or resign, you have to appoint a new director before terminating the appointment of the current person in office.

Who can and cannot be a director?

The director of a limited company can be a human being or an artificial ‘person’ (i.e., another company). The latter is known as a ‘corporate director’. There are no specific qualification requirements to be a director, but you must ensure the person is competent and able to carry out the required duties effectively.

A human director must meet the following criteria:

• Is at least 16 years old
• Is not an undischarged bankrupt
• Has not been disqualified by the court from acting as a director
• Is not acting as auditor of the company
• Is not subject to any UK government restrictions
• Satisfies any additional conditions/restrictions stipulated in the company’s articles of association and shareholders’ agreement

As part of the UK Government’s aim to increase corporate transparency, a ban on corporate directors was due to come into force from October 2016, as per the Small Business, Enterprise and Employment Act 2015. This ban has, however, been postponed and it remains unclear when it will be brought into force. Nonetheless, this is something companies should monitor continuously going forward.