Companies have boards of directors who oversee the management of the business. But what happens when you want the directors to resign?
Overview
Remove a Director of a Company – In the dynamic landscape of corporate governance, the removal of a director from a company is a process governed by a set of conditions and procedures. The ability to remove a director rests on the company’s articles of association and the prevailing laws in the jurisdiction. This consequential decision can be triggered by various factors such as misconduct, breach of duty, poor performance, conflict of interest, bankruptcy, or disqualification.
When considering the removal of a director, the company typically follows a structured process. The first step involves issuing a notice to the director in question, informing them of the intended removal. Subsequently, a meeting of the board of directors or shareholders is convened, depending on the company’s governance structure. The decision to remove a director is then formalized through the passing of a resolution during this meeting.
It is crucial to note that the director in question may have the right to present their case or provide their perspective before the final decision is made. This procedural safeguard ensures fairness and transparency in the removal process.
The ramifications of removing a director are significant and should not be underestimated. Careful consideration is paramount, as the decision can impact the company’s stability, reputation, and overall functioning. It is imperative to adhere to the company’s articles of association and applicable laws during the removal process to mitigate the risk of legal challenges or disputes.
What is the Process to Remove a Director of a Company?
The procedure to remove a director is as follows:-
- A notice should be prepared and drafted resolution(s) to be passed in the board meeting.
- The company should inform the concerned director that he is being removed.
- Sending of Notice and Agenda of the Board meeting to all the company’s Directors.
- Convene a board meeting to consider the removal of the concerned director and to give notice of the general meeting to company members.
- A general meeting notice must be sent to all members at least 14 days before the general meeting date. A special notice to remove a director must be passed at least 14 days before the meeting at which it must be moved, excluding the day on which the notice is served and the day of the meeting.
- A special notice is required to the company. It shall be signed, either individually or collectively, by a sufficient number of members holding not less than 1% of total voting power/holdings for which an aggregate sum of but no more than ₹5 lakhs has indeed been paid as of the notice date.
- Holding a General Meeting to allow the director to be removed to be heard and speak. Ordinary resolutions may be passed if they appear to be just and equitable.
- Before passing a resolution, a director is allowed to speak his opinion, and he is given a fair chance to the board. Ordinary resolutions may be passed if they appear to be just and equitable.
- Passing of ordinary resolution if it seems just and equitable.
- Preparation of documents for the removal of the director, as well as notification to relevant departments
What Documents Are Needed to Remove the Director?
The documentation required for the Remove a Director of a Company is a crucial aspect of the process, and it’s essential to adhere to specific forms depending on the jurisdiction and the company’s unique requirements. Here are some common documents that may be needed in the removal of a director:
- Notice of Meeting: This formal document serves as an official communication to shareholders or the board of directors, detailing the date, time, and location of the meeting where the removal of the director will be deliberated. It provides the necessary framework for stakeholders to participate and engage in the decision-making process.
- Resolution: A resolution is a formal document articulating the decision of either shareholders or the board of directors regarding the removal of the director. It outlines the reasons behind the removal and encapsulates the voting outcome. This document solidifies the legitimacy of the decision-making process.
- Form TM01 (United Kingdom): In the UK, Form TM01 is indispensable for notifying Companies House of the termination of a director’s appointment. This form must be diligently completed and submitted within 14 days of the director’s removal. It plays a crucial role in maintaining transparency and regulatory compliance.
- Form DIR-12 (India): To communicate the dismissal of a director to the Registrar of Companies in India, Form DIR-12 is obligatory. Submission of this document is required within 30 days of the director’s termination, ensuring regulatory adherence and accurate record-keeping.
- Form 288b (United States): In the United States, notifying the Securities and Exchange Commission (SEC) of the removal of a director involves submitting Form 288b. This form must be filed within 10 days of the director’s removal, contributing to the transparency and regulatory obligations of the company.
It’s imperative to recognize that the specific forms necessary can vary based on the jurisdiction and the provisions outlined in the company’s articles of association. Seeking legal advice is highly recommended to ensure the correct forms are completed accurately and submitted within the stipulated time frame. This proactive approach helps mitigate the risk of legal complications or penalties associated with the removal process.
Remove a Director of a Company by Shareholders
- Step 1: A notification to all shareholders is sent out to a board meeting that must be held within seven days of the date of issuance.
- Step 2: A resolution is managed to pass, calling for a general meeting and then the removal of the director, subject to shareholder approval on the meeting day.
- Step 3: After furnishing a 21-day notice, the second meeting of shareholders is held to vote on the resolution passed earlier, and the director who the shareholders are removing will be allowed to speak on their removal
- Step 4: The shareholders must file Form DIR-12 and the board resolution’s attachments and an ordinary resolution.
- Step 5: Once all formalities are met, the concerned director’s name is removed from the Ministry of Corporate Affairs (MCA) database and website.
Removing a Director-Employee under the Companies Act 2006
Removing a director under the Companies Act 2006 is serious and involves a well-defined process. While I can’t provide specific legal advice, I can guide you through the general steps:
- Understand the grounds for removal: The Companies Act outlines several grounds for removing a director, such as:
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- Resignation: The director voluntarily submits a written resignation.
- Disqualification: The director becomes disqualified due to reasons like bankruptcy, a conviction for certain offences, or holding incompatible offices.
- Breach of fiduciary duty: The director needs to uphold their responsibilities towards the company and its shareholders.
- Misconduct: The director engages in fraudulent or dishonest behaviour.
- Poor performance: The director consistently needs to fulfil their duties effectively.
- Loss of confidence: Shareholders lose faith in the director’s ability to lead the company.
- Verify the company’s articles of association: These documents may specify additional grounds or procedures for director removal specific to your company.
- Follow the proper removal process: Depending on the grounds and the company’s structure, the removal process may involve:
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- Notification: The director must be notified in writing of the proposed removal and the reasons for it.
- General meeting: In most cases, shareholders must vote on a resolution to remove the director at a general meeting. This requires proper notice and adherence to voting procedures.
- Board of Directors’ action: In limited circumstances, the Board of Directors may have the authority to remove a director without a shareholder vote.
- Seek professional guidance: Removing a director can be complex and involve legal nuances. Get in touch with our experts and know more.
- Maintain professionalism and transparency: Throughout the process, prioritize clear communication, fairness, and adherence to due process. Document all steps taken and decisions made to maintain a transparent record.
Removing a Director Who Is Also an Employee
Removing a company director who is also an employee requires a two-pronged approach, addressing both their employment and directorship status. Here’s a breakdown of the key steps:
Termination of Employment
- Follow Due Process: Adhere to the company’s employment contract and internal policies for termination, including valid grounds, proper notice period, and due compensation.
- Initiate Termination: Depending on the reason (performance issues, misconduct, redundancy, etc.), follow the appropriate internal procedures for initiating termination.
- Document Everything: Maintain proper documentation of all steps taken, notices issued, and reasons for termination.
Removal from the Board of Directors
- Compliance with Companies Act 2006: Refer to Section 167 for authorized grounds for director removal, such as resignation, disqualification, or shareholder resolution.
- Call a General Meeting: Convene a shareholder meeting with proper notice, clearly specifying the proposed removal resolution and justification.
- Shareholder Vote: At the meeting, shareholders vote on the resolution. A simple majority vote is required for removal.
- File Documents with ROC: Within 30 days of removal, file the necessary documents with the Registrar of Companies (ROC).
What Are the Forms Involved in the Removal of the Director?
- E-form MGT-14
- E-form DIR-12
What Are Post Compliances Once a Director Has Been Removed From Company?
The company must prepare the forms mentioned above and any relevant attachments with the Registrar within thirty (30) days of passing the resolution passed in the general meeting. It must also make appropriate entries in the company’s statutory registers within the time frame prescribed by the Companies Act, 2013.
What if a Company Fails to Comply with the Provisions?
If a company violates these provisions, the company and each officer of the company who is in default are subject to a fine of not less than ₹50,000 but not less than ₹5 lakhs.
FAQs
Can you remove a director without their signature?
Generally, no. Removing a director often involves documents requiring their signature, like resignation letters or resolutions passed at general meetings. However, exceptions might exist based on the specific circumstances and grounds for removal. Consult a lawyer for specific guidance.
On what grounds can a director be removed?
Several grounds justify removing a director under the Companies Act 2006:
Resignation: Voluntary written resignation by the director.
Disqualification: The director becomes disqualified due to reasons like bankruptcy, certain convictions, or incompatible offices.
Breach of fiduciary duty: Failing to uphold duty towards the company and shareholders.
Misconduct: Engaging in fraudulent or dishonest behaviour.
Poor performance: Consistent failure to fulfil directorial duties effectively.
Loss of confidence: Shareholders lose faith in the director's leadership ability.
How do I remove a director from a Pvt Ltd company?
There are two main methods:
By ordinary resolution at a general meeting: Send 21 days' notice to shareholders about the meeting with the removal resolution on the agenda. At the meeting, shareholders vote on the resolution. A simple majority vote removes the director.
By the Board of Directors: This option may be available under specific circumstances and company articles of association, often for violating articles or gross misconduct.
Can a director challenge their removal?
Yes, a director can challenge their removal in court if they believe the process was flawed or the grounds invalid.
How do you forcibly remove a director?
Forcibly removing a director isn't a legal concept. The removal process must follow the Companies Act and company articles. If the director resists cooperation, legal action to enforce removal might be necessary.
What is the notice period for director removal?
It depends on the removal method. For general meeting resolutions, 21 days' notice is required. For Board removal, the notice period might be shorter based on company articles.
How do you force a director to remove a company?
In accordance with Section 168 of the Companies Act 2006, a shareholder has the option to petition the court for the removal of a company director. This request is typically based on allegations of serious misconduct or a determination that the director is no longer fit to fulfill their responsibilities.
What Are the Basic Rules for Removal of a director?
The elimination of a Director under Section 169 of the Companies Act 2013 is subject to specific provisions. As per the 2013 Act, the removal of a director can only take place during a general meeting through the approval of an ordinary resolution. Notably, this condition is applicable unless the director in question was appointed either through proportional representation or under section 163.
How Soon can you remove a director?
To initiate the removal of a director, a shareholder must provide the company with special notice indicating their intention. Subsequently, the company has a period of 28 days to convene a general meeting. During this meeting, shareholders will cast their votes on the proposed resolution. Should the resolution receive approval by a simple majority, the director in question will be ousted from their position.
What happens if directors don't agree on removal?
Resolving director conflicts: Liquidation. In cases where 50/50 directors fail to reach a consensus on liquidating their company, one party may explore options such as acquiring the other partner's share in the business. Alternatively, they may seek special grounds to initiate the winding-up process for the company in question.
What punishment should be given to directors?
Each director in a defaulting company is obligated to pay a penalty of INR 1 thousand for each day of default, along with a simple interest rate of 18% per annum for the duration that the default persists.
How does a director remove himself from a company?
A director has the option to step down from their position by submitting a written notice to both the company and the Board. Upon receiving the resignation notice, the Board will acknowledge it, and the company is required to inform the Registrar within the specified timeframe and in the prescribed format. Additionally, the company must include the details of the resignation in the directors' report presented at the subsequent general meeting. It is important to note that the resigning director must also send a copy of the resignation, accompanied by detailed reasons, to the Registrar within thirty days of stepping down, following the prescribed procedure.
