Telling the truth about SME life today

How To Resign As A Director Of A Company

Director resignation

If you’ve decided to resign from the position of director of a company you will need to review the director’s contract from the company that you work with to check any specific notice or processes to follow when handing in your resignation.

Steps will generally include;

  • It is giving formal written notice of your plans to leave. This will include a proposed final date.
  • Making plans to finalise any current projects or handovers required for continuity of business operations.
  • Notifying companies house of the change in directorship
  • Return any property belonging to the company including company cars
  • Settle any outstanding payments owed

Resigning from the board of directors is an important decision due to the legal responsibilities held by the position. Whilst each company will have its resignation process included in its employee or director contracts, most will follow the same general steps outlined here.

Read on for more information on the key stages of resigning as a company director so that you can be sure to tie up any legal, moral and administrative loose ends before your departure.

What Is A Company Director?

A company director is an important governance role within private and public incorporated businesses. It’s a role that comes with legal duties under corporate law, putting them in a position of responsibility for strategy and representing shareholders.

These duties require them to act in good faith and the company’s best interests. Shareholders of the company elect the director(s) of a company and directors then become part of the board of directors.

A director is responsible for overseeing the management of the business, its strategy, financial performance, compliance and corporate governance. They’re instrumental in making and approving big business decisions, including the hiring and firing of executives.

The Resignation Process For A Company Director

Review your director service agreement

Reviewing your director’s service agreement and the company constitution should be the first step when resigning from the position. This is where you will find clarification on notice periods and protocols that you are required to follow. Most director roles have a notice period of 1-3 months but this can vary.

Give your formal written notice

You must issue a formal written letter of resignation to the board of directors and company secretary. This should let them know that you intend to resign and include a proposed final date for the role you are leaving. You can share your reasons for leaving but are not legally required to do so.

Approval / Acceptance of notice

Once they have received your resignation letter, the board or shareholders (depending on the company constitution) must approve and formally accept the resignation. This may take place via a vote at a shareholder meeting.

Handover

During your notice period, you will need to ensure that you have made plans to hand over any roles and responsibilities that you have. You may be involved in the process of finding a replacement director or be asked to assist in welcoming them to the company. You will officially be a director of the company until your final day, so it’s important to remain professional and still meet your legal duties during this phase of transition.

Notifying Regulatory Bodies

When there is a change to the board of directors, company house, HMRC, lenders & insurers and the FCA is applicable need to be notified within set timeframes.

Companies House needs to be updated within 14 days of the change so that the public register of directors remains accurate. HMRC needs to be told within 3 months of the change to ensure that tax records and correspondence go to the right people.

If the business is publicly listed on the stock exchange, the Financial Conduct Authority (FCA) must be told of the change in directors promptly too. Lenders and insurance providers will also need to be notified and this is particularly important if any business loans are currently active.

If the company is registered with any industry-specific regulatory bodies such as the Financial Services Register or Legal Society, they should also be made aware of resignations and appointments so that their records are accurate.

Finally, less formal notifications need to be sent to employee benefit plan administrators so that pension schemes, share plans and other benefit delivery can be updated.

So, whilst the most important bodies to notify are HMRC and Companies House, there are plenty of other third parties that should be kept in the loop when boards of directors change personnel.

Why Might A Director Resign?

The role of director may come with plenty of perks, but it’s also a big role with big responsibilities, which may become too much for some people.

Some common reasons for wanting to, or needing to resign as a director include; changes in personal circumstances, disagreements among colleagues, business performance, conflicts of interest, health reasons and retirement.

Just like any regular employment role, the reasons you may resign from the role of director can be varied.

Changing in personal circumstances such as having children, needing to look after sick or elderly relatives, moving house to a different area or changing employment can all make a director role impractical.

As a director, you’re required to act in the best interests of the company but if you are struggling to agree with board decisions and can’t resolve your differences, you may feel it is better to resign.

If the company that you’re on the board for is having a period of decline and underperforming, you may cut ties and move on. Removing yourself from a declining company can help to limit your liability and protect your reputation.

Conflicts of interest are when your interests compete with your professional role and obligations. If your loyalty is divided or you are unable to remain impartial then you may need to resign from the board to maintain integrity.

Everyone needs to retire at some point and you may have reached the point in your life that you want to free up your time and enjoy a different style of living. Equally, some contracts can stipulate mandatory director retirement ages.

Businesses can protect themselves from director resignations by properly setting out procedures for common scenarios that may lead to a director handing in their notice. This will help to ensure strong governance and streamlined succession planning.

Liabilities Of A Director

Being a director isn’t just a fancy job title – it comes with plenty of liabilities which will cease to exist upon your resignation.

As a director, you can be personally sued by shareholders for breaching a duty of care, skill, diligence, good faith, and acting in the company’s best interests. In this role, big mistakes can lead to big consequences.

If business investments haven’t paid off, directors could be liable for the losses, and failure to meet statutory requirements in areas like employment, health and safety, finance and environmental laws can all lead to fines and legal prosecution too.

Director insurance is available to help manage the risks that you take within the role. Should it be needed, insurance could help to manage the financial burden should you need to make a claim.

Are There Any Implications Of Resigning From The Board Of Directors?

As directors are subject to legal and moral obligations, these will cease to exist once you have resigned from the role. It’s important to note however that your conduct as a director during your time of service will have lasting effects, and resigning cannot change your past obligations.

The main implications of no longer being a director are: 

  • You will have no further power to act or make decisions on behalf of the company
  • You will no longer be liable for company activities but you will remain personally liable for things that occurred during your period of office.
  • If you hold shares in the company, your shareholder rights are unaffected unless the terms of your resignation require you to relinquish your shares.
  • Any voting rights you held as a result of the director role will be lost but if you remain a shareholder, these are unaffected.
  • You will no longer be paid for your role or time spent at meetings. This will include any retainers, meeting fees and bonuses received.

Overall, the act of resigning as a director means that any powers and liability held will immediately come to an end but your past obligations and their legal and financial consequences will remain.

What Happens If You Don’t Resign Properly?

Failure to follow the correct formal procedure when resigning as a director can lead to legal and financial penalties.

If you choose to just leave or end your term as a director without following the proper procedures, a disqualification order can be brought against you which bans you from being a director again for a set period. This could be anything from 2 years to 15 years!

Your unregulated departure may also lead to drops in share prices or lost business opportunities which could in turn lead to legal charges being brought against you for the losses that you have caused.

Your professional reputation will also likely be damaged which may put others off from working with you in the future. So all in all, the negative impacts of failing to resign properly can be very damaging to both you and the company that you’re leaving.

Other Options For Resignation

Depending on your circumstances, it may be that you need to take a step back from the role rather than resign. There are plenty of options to consider that would allow you to continue to play a part in the company leadership.

A leave of absence could be granted in situations of poor health, family commitments or sabbaticals. This option means that you remain in position, but are shielded from the day-to-day activity of the company. The benefit of this is that you can return once your situation has returned to normal and the business doesn’t need to find a replacement for you.

If you’re thinking about leaving due to personal differences, you can talk to the chair of the board to voice your concerns. If things are so bad that it makes you consider leaving, the chairman may be able to take action that helps you to stay.

If time pressures are the reason for your resignation consideration, you could switch to a non-executive role. This means you can still contribute at a strategic level and attend board meetings but wouldn’t need to be so hands-on with day-to-day responsibilities.

If you’re thinking about resigning, there may be other options to consider that could improve your current position and provide the space that you need. Consider if any of the options above would work for you before making your final decision.

Finally,

There is a full and proper process to be followed when resigning as director of a company. The correct way to do this is to review your rights and procedures to follow, give notice to the board, set up a handover period and make sure that regulatory filings are handled efficiently.

Making sure that these key steps are followed is key to minimising your liability and reputational damage. If you are leaving the role for any potentially damaging reasons, it would be wise to seek legal support to navigate this process effectively.

Trending

Topic

Related Stories

More From

Most Read

Trending

If you enjoyed this article,
why not join our newsletter?

We promise only quality content, tailored to suit what our readers like to see!