Directors of a company definitely mean serious business. They run the companies of the world in their own extraordinary style, whether active or inactive directors. But what if they leave the company? And how do they do that?
Thus, resignation of a Director also involves conscientious thinking, especially from a UK company, and brings a series of questions, like
- What type of a company is it?
- What are the legalities involved?
- Is the director also a shareholder?
- Has the director made loans to the company that remain outstanding?
- Is the director owed any other amounts by the company?
A very useful insight here is to know the type of the company, so as to follow the process of resignation rightfully.
Types of companies in the UK
- Public limited company (PLC)
- Private company limited by shares (LTD)
- Company limited by guarantee
- Unlimited company (UNLTD)
- Limited liability partnership (LLP)
The procedure of resignation of director for each of the types is more or less the same, however may differ as per the director’s service contract and contract of employment.
Process of Resignation as A Director From A UK Company
First and foremost is to give attention to the director’s service agreement, that may have a provision illustrating, how to resign as a director of the company..
When nothing concrete is provided and the service agreement is silent, the next allusion is company’s articles of association.
The Model Articles (for companies registered from 1.10.2009) or Table A (for establishments registered before 1.10.2009) has laid down explicit provisions concerning the resignation of directors.
The Model Articles, art 18 embarks a director to have his office vacated if-
- that person finishes to be a director by any of the provisions mentioned under the Companies Act 2006 or is forbidden by law to act as a director;
- an insolvency order is formulated against that person;
- a conformation is made with that person's creditors generally in consummation of that person's debts;
- a written judgement is handed over to the company by a registered medical practitioner who is treating that person that this person (who is acting as a director) has become mentally ill or physically incapable of acting as a director and may continue to stay in that state of health for more than three months;
- as a consequence of that person's mental being, a court makes an order which entirely or partially precludes that person from individually exercising any powers or rights that person would otherwise have;
- Statement is received by the company from the director that the director is quitting from office, and such a notification has taken effect in accordance with its expressions.
Table A, article 81 has laid down that a director’s office shall be emptied if -
- He stops to be a director by feature of any provision in the Act or he becomes verboten by law to act in such a capacity; or
- He becomes insolvent or makes any arrangement or configuration with his creditors generally; or
- He is, or may be, suffering from mental challenges and either -
- He is admitted to hospital in undertaking of an application for admission or treatment under the Mental Health Act 1983 or, in Scotland, a request for admission under the Mental Health (Scotland) Act 1960, or
- A court that has jurisdiction makes an order (whether in the United Kingdom or elsewhere) in matters concerning mental disorder for his detention or for the appointment of a receiver, other person to exercise controls with respect to his possessions or affairs; or
- He leaves his office by notification to the company; or
- He shall for more than six successive months has not been around without consent of the directors from meetings of the directors held during that period and the directors come to a conclusion as to his office be vacated.
The above, however, is not an exhaustive inclusion of all the possibilities and situations and maybe there are other provisions provided in the articles of any specific company illustrating on how a directors' office to be freed.
In some cases, relatively unusual, a company’s articles may sanction a director’s resignation by the discretion of board which can create difficult scenarios in small companies, particularly there, where it is difficult for the board members to come to a fundamental decision or mostly the board members keep each other at bay from coming to a conclusion. A director can also fill a form or apply online for giving resignation.
When there are no specifications as to the procedure of resignation, a director may resign at any time by giving an appropriate and timely notice to the company. Idyllically, the notice of resignation should be in writing, although this is not specifically required by law.
Resign as a director – sole director
A sole director and shareholder of a solvent limited company, has a number of options for the exit strategy:
- Could continue to own the business and appoint a new director to manage it
- he becomes insolvent or makes any arrangement or configuration with his creditors generally; or
- he is, or may be, suffering from mental challenges and either -
It is advisable to always seek professional legal guidance prior to making any such decision.
To resign as a director from a UK Private Limited company, the procedure to be followed is simply exemplified.
The resignation of a person as a director of a private limited company is initiated directly with Companies House. To resign as a director, one needs to complete the specified form from Companies House, which is form TM01 (director). The minutiae required to complete form TM01 are:
- Company Number
- Company Name
- Date of Resignation
- Date of Birth of the director
- Full name of director
- Position/ designation from which the individual is resigning
The form is available on the Companies House website and other sites free of cost. There are sites that sent the required TM01 form automatically to Companies House electronically and also provide fully updated online statutory registers, including the register of directors, that are automatically produced on the hit of a button. And more so, a fully populated board minute is produced to document the transaction.
It’s the company’s responsibility to inform Companies House. The company must notify Companies House within 14 days.
There might be situation, when the director might also contemplate sending the notice to the company’s registered office address by verifiable distribution channel and thus hold the proof of posting which is helpful in cases where difference of opinion subsists or if director is of the opinion that company will immediately apprise its records and may reach out to the Companies House before him, about his resignation. It should be clearly remembered and mentioned that it’s the company’s responsibility not that of the resigning director, to inform Companies House, failing which there could a rejection of form TM01 if Companies House receives it from the director.
There are other things to be considered that must be taken into account while this process is going on, for a smooth separation from both ends. These are usually concerns related to a public limited company, where director can also be a shareholder.
- If the director is a shareholder, the next question that pops up - is there a requirement under the company’s articles of association for their shares to be transferred? Even if the articles do not require the transfer of a retiring director’s shares, doing so is often the most amicable solution for all parties when a director ceases active involvement in the company.
- Are there any loans that persist to be still outstanding? - If yes, this should be properly and legally taken care of.
- Are there any other amounts of the company that the director owes? - In many cases, the director (as well as the company) may want to take legal advice on these issues.
Apart from the above stipulations, these things are also needed to be kept in mind and work upon. The company also needs to update its statutory registers to reflect the change. This will include updating:
- The register of directors (when a director leaves office);
- The register of directors’ residential addresses (also when a director leaves office);
- The register of secretaries (when a company secretary leaves office)
Directors in their innate capacity in an organization must part ways in a harmonious manner. As it is rightfully quoted, that the “Directors may come and go, but a company goes on forever.”