In this article we look at what the director needs to do – including sending a resignation letter to the company – what potential issues need to be considered and also what the company needs to do – including submitting the form TM01 to Companies House.
Directors and company secretaries will often change over the life of a company. Changes will arise for a variety of reasons including:
- resignation as a director upon retirement;
- director’s resignation due to serious ill health;
- a director resigning to move to a new job;
- director’s resignation following disagreement with the other directors or company shareholders;
- director’s death – see how to deal with the death of a company director;
- company takeover;
- removal from office – for example, where shareholders decline to re-elect a director or the shareholders or other directors vote to remove a director from the board; and
- disqualification as a director.
How to resign as a director of the company
Simply process a director resignation
Inform Direct automatically sends the required form TM01 to Companies House electronically and produces online statutory registers, including the register of directors, for you. You can also produce a fully populated board minute to document the resignation.
The first place to look for an answer is the director’s service contract, which may contain the process to follow when a director resigns. This will often include both a notice period required and a particular procedure to be followed.
If the service agreement is silent, the company’s articles of association or any shareholders’ agreement may contain provisions to be followed on director resignations. While now relatively unusual, in some cases a company’s articles can require the board to approve any director resignation – which can create difficult scenarios in small companies, particularly where there is fundamental disagreement amongst board members.
When there are no particular provisions, a director may resign at any time by notice to the company. Ideally, the notice of resignation should be in writing, although this is not specifically required by law. We’ve created a template resignation letter for directors which you can adapt and use.
In some situations, the director might want to send the notice to the company’s registered office address by recorded delivery and retain the proof of posting – this may be useful where disagreement exists or when the director has reason to doubt that the company will promptly update its records and inform Companies House of the resignation. It’s worth remembering that it’s the company’s responsibility, not that of the resigning director, to tell Companies House – if the director does try to send form TM01 to Companies House, it may well be rejected.
When a director resigns the director and company may have to consider other issues. While beyond the scope of this article, these include:
- Is the director also a shareholder? If so, is there a requirement under the company’s articles of association or any shareholders’ agreement for their shares to be transferred? Even if the articles or shareholders’ agreement 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. Elsewhere, we explore the process of transferring shares;
- Has the director made loans to the company that remain outstanding?
- Is the director owed any other amounts by the company?
In many cases, the director (as well as the company) may want to take legal advice on these issues.
What does a company need to do when a director leaves office?
Directors, company secretaries and LLP members will often have notice periods of three months or more which should give the company or LLP time to find a replacement. However in some instances, for example death, it will be sudden and unexpected. Directors leaving can cause issues for a company and it is best if a company can plan it in an organised manner to keep any disruption to a minimum. Companies should consider having an up to date succession plan in place for key directors as well as other key members of staff.
When a director leaves office the company should consider:
- If a replacement is required or will the existing officers be able to adequately cover the work;
- If a compromise or other leaving agreement is required;
- If the director resigning should cease all company involvement immediately and/or go on gardening leave;
- If the shareholders need to be informed immediately of the director’s resignation;
- Informing the bank and removing the director from bank and other mandates;
- Informing the employees, major customers and suppliers;
- Informing Companies House of the officer leaving office – see below;
- Updating the company’s statutory registers – see below;
- Informing the directors’ and officers’ liability insurers;
- If the person is the sole company secretary and one is required (eg for a public limited company) then a replacement will be needed;
- If the person is the sole individual director then a replacement will be needed urgently in line with the requirements of the Companies Act 2006.
- If the person is one of the only two designated members of a LLP then, a replacement designated member is urgently required.
Submitting form TM01 to Companies House
The company should inform Companies House within 14 days of the date the officer left office. This is done by completing form TM01 for directors, form TM02 for company secretaries or form LLTM01 for LLP members.
If a replacement officer is being appointed then the appropriate officer appointment form will also need to be submitted to Companies House – our article on how to appoint company directors and secretaries covers the process and forms required in each case.
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);
- The register of shareholders (when the retiring director’s shareholding is sold);
- The register of LLP members (when a LLP member leaves office);
- The register of LLP members’ residential address (when a LLP member leaves office).
Although no board resolution is technically required upon a director leaving office, it’s also good practice to record that the resignation occurred the next time the company holds a board meeting. When you process a director resignation in Inform Direct, you can choose to produce a fully populated board minute to document it in a compliant fashion.
Process director resignations, with updates to Companies House, statutory books and board minutes
A previous version of this article was originally published on 26 February 2014.