How do you remove a director of a company?

Three friends were directors of a company that they grew from a start-up into a very successful business.  They all had equal shares in the company (33.33% each).

They unfortunately had some disagreements about the running of the company which led to two of the friends ganging up on the other, and voting him out as a director.  He went to his lawyers for legal advice.

Unfortunately for the person who had been removed, the other two owners had the right to remove him as director, as they had over 50% of the shares in the company.  They had not made any other agreement in the form of a shareholders agreement or constitution.

Who can remove a director of a company?

In the absence of any provisions in a company’s constitution, if shareholders wish to remove a director, they need to follow the following process:

• Call for a shareholders meeting with the specific purpose of removing the director. The notice of the meeting must state this purpose;
• In the meeting, shareholders can remove the director through an ordinary resolution (i.e. voting by majority); and
• If there is a majority vote for the resolution, it is passed and the company’s director is thus removed.

If there is a company constitution, then the process in the constitution needs to be followed instead of the default process in the legislation above.

If the correct process is not followed for removal of the director, the director is able to sue the company.

In addition to the right for shareholders to remove a director, company directors can personally remove themselves from office by signing a written notice of resignation which is to be delivered to the company’s address.

When a company changes a director, it has to notify the Companies Office, and any new director will have to sign and upload a consent form within 20 working days of entering the new director’s name on the register.

In the case above, the director who had been removed remained a shareholder in the company, so the remaining directors still had obligations to him as a shareholder.  The removal of the person as director does not affect that person’s rights as a shareholder.

Whenever you are wanting to remove a director, it pays to take legal advice to make sure you follow the correct procedures so you don’t get caught out.