There are many reasons why a director may want to resign from a limited company. They may wish to retire or take on a new challenge. In some situations, they may have been asked to step down by other directors.
However, regardless of the reason for the resignation, there are important steps that must be followed to ensure that the resignation is completed correctly.
Let other directors know
An important first step is to let the other directors of the company know. Some directors make the mistaken assumption that alerting Companies House is the only action they need to take.
If the director who wants to resign is the sole director of the company, they need to ensure a new director is in place before their resignation. If they don’t do this the company could be struck from the register at Companies House.
From a practical point of view the director may also want to make customers and key stakeholders aware of their resignation, date of departure and who their contact at the business will be moving forward.
Write a letter of resignation
Although there is more to the resignation of a director than a letter of resignation, it is still a vital step in the process. The letter will need to be sent to the company, ideally including the proposed date of resignation.
Check legal documents and agreements
The resignation process may depend on what is set out in various legal documents and agreements. As such, an important step is to review these documents to ensure that the correct process is followed.
This includes the director’s service agreement or employment contract (if there is one) to check if there is a required resignation process.
The terms of any existing shareholders agreement should also be checked for the required process and consequences of resignation. For example, if the director is also a shareholder they may need to transfer their shares for a certain price. Shareholders’ consent may also be required to authorise the resignation.
The company’s articles of association may also include details of the resignation process and these should also be reviewed.
Some directors may make loans to the company, or the company may have made a loan to the director. If this is the case, the relevant loan agreement must be verified. The balance should be checked as well as the repayment terms to verify how the resignation might affect the loan and repayment schedule.
Get confirmation of company’s approval
A board resolution or board minutes are typically required to confirm the company’s approval of the resignation. This may be subject to any variations which may be required depending on the terms of the documents outlined above.
Notify Companies House
Companies House will need to be notified of the director’s resignation within fourteen days of the resignation by filing a TM01 form at Companies House.
After a director has resigned from a limited company, they will no longer have any legal responsibilities for the company and if the business encounters financial difficulties in the future there will be no impact on the director who has resigned, provided that they have followed the steps referred to in this article.
By Zahrah Fakim, Associate, Spector Constant & Williams
