Directors can resign or be removed for many different reasons, be they strategic or personal. A change of director calls for certain company secretarial procedures and at least one filing to Companies House. This article explains how to get these done with minimum fuss. We also point out some related issues to consider when administering a director’s resignation.
In this article we cover the essentials including:
- Why directors resign or are removed from office
- What the director needs to do to resign, including sending a resignation letter to the company (a downloadable template for this is available below)
- What the company needs to do, including submitting form TM01 to Companies House
- A few potential issues that need to be considered surrounding the resignation of a director.
Directors will sometimes come and go over the life of a company. Changes will arise for a variety of reasons including:
- Resignation as a director upon retirement
- Retirement by rotation
- Resignation due to serious ill health
- Moving to a new job
- Resignation following disagreement with the other directors or company shareholders
- 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
- Disqualification as a director, for example by personal bankruptcy.
How to resign as a director of the company
Simple processing of director resignations
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. It may contain the process to follow when a director resigns. This will often include both a required notice period 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. This 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. If the resignation letter includes a waiver of claims by the resigning director it is best practice to execute the resignation letter as a deed. This will help protect the company from any future issues that may arise concerning whether consideration was given for the waiver. We’ve created a template resignation letter for directors, to be executed as a deed, which you can adapt and use. The director resigning should sign the document in the presence of a witness and keep one copy of the signed document for their own records and forward one copy to the company.
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 is 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.
Related issues
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 neither the articles nor shareholders’ agreement requires the transfer of a retiring director’s shares, doing so is often the most amicable solution for all parties. 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 (Limited Liability Partnership) members will often have notice periods of three months or more. This should give the company or LLP time to find a replacement. However, in some instances – for example, death – it will be sudden and unexpected. To keep any disruption to a minimum, companies should consider having an up-to-date succession plan in place for directors and other key members of staff such as LLP members.
When a director leaves office the company should consider:
- Whether a replacement is required or whether the existing officers can adequately cover the work
- Whether a compromise agreement or other leaving agreement is required
- Whether the director resigning should cease all company involvement immediately and/or go on gardening leave
- Whether 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 leaving is the sole company secretary and one is required (e.g. for a public limited company) then a replacement will be needed.
If the person leaving is one of the only two designated members of a LLP then a replacement designated member is urgently required.
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. Following the High Court case Hashmi v Lorimer-Wing (2022), it may be necessary to appoint a minimum of two directors and/or change the company’s articles of association.
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 is good practice to record the resignation 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
This article was originally published on 26 February 2014. It was revised and updated on 20 September 2022.