How to Resign as a Company Director? The Complete Guide

Directors within a company resign for varying reasons. This could be a need to explore more opportunities, start a new business, focus on some other areas of life, and many more. If you wish to resign as a director soon, there are some steps, procedures, and legal requirements you must fulfil.

Furthermore, you as the director and the company itself must follow the guidelines in the Companies Act 2006 and the company formation documents. In this guide you will learn how to resign as a company director, the steps to follow, what to expect after resignation, and so on.

Steps to Resign as a Company Director

Resigning as a director of a company is quite a straightforward process however there are some vital steps you need to take in order to go through the process officially and as expected.

1. Prepare for the Resignation Process

Before beginning your resignation process, it is important to make some preparations. These include settling loans and debts if you have any and assessing if there could be any potential disputes so they can be resolved beforehand.

Loans or debt could pose a hindrance to your resignation process if not cleared. So to ensure that you have a smooth resignation process, make a consultation with the appropriate personnel and clear out the loans. On the other hand, you should assess if there could be a potential dispute concerning company finances, management, or a disagreement between directors or shareholders before notifying others about the resignation.

2. Check through the relevant document to see the resignation procedure

The next step to take when resigning from your company is to review the essential documents and agreement to see the resignation procedures and rules. One of such document to check is the service or contract agreement. Be sure to check if there are specific requirements for resignation or a specific notice period before resignation.

Apart from that, you would also want to go through the articles of association and familiarize yourself with the Companies House employment termination regulations before starting your formal resignation process.

In a situation whereby the director is also a shareholder, then it is expected that the director also goes through the shareholder agreement to see if there's a requirement to transfer shares upon resignation or if there are any other special procedures to be followed.

3. Provide a letter of resignation

The next step would be to provide a resignation letter. This letter formally informs other directors and shareholders of the company about your resignation and should therefore be done effectively. You can send this letter through email or send a hard copy of the letter to the members and other directors.

After you have done that, you might also want to inform some of the important company’s clients, suppliers, and vendors about your resignation. Although this isn’t compulsory to do, it is better to keep them informed and provide them with the contact of the next director you will be replaced with.

4. Inform the Companies House

It is important that Companies House is notified within 14 days after the resignation is done. Although the company itself is supposed to make the arrangement for the termination process with Companies House, the director itself should also take note of this point.

To inform Companies House about the resignation of a director, the form TM01, Termination of a director appointment form will be filled and submitted. This form can be completed through the Companies House website.  The personal details of the resigning director and the registration number of the company will be needed to complete the form.

Once completed and submitted, Companies House will notify the company of the termination of the director’s appointment. Although the director’s details would remain on the Companies Register, their position as a resigned director will be stated.

In a situation whereby the resigning director is the only director of the company, then a replacement must be provided to the Companies House during this process.

5. Provide records in the minutes of the next board meeting

Once the Companies House has been informed, the company should provide the record of the resignation in the minutes of the next board meeting and the register of directors. All of these should be stored and made available in the company’s registered office.

Understanding Your Rights and Obligations When Resigning as a Director

When resigning as a company director, it is important to understand your rights and obligations regarding the resignation. There is a need to familiarize yourself with important documents like the contract or service agreement, shareholder agreement, and Companies Act 2006.

Service or Contract Agreement

A service agreement is an official document that typically outlines your roles, duties and obligations, remuneration, and compensation within the company. Apart from that, a service agreement most times explains the terms and conditions of resignation. As such it becomes crucial to conform to the rules and terms of the document so as to ease a smooth and healthy departure.

Shareholder Agreement

If you own a share within the company, then it becomes necessary to also review the shareholder agreement before resigning. A shareholder agreement is a legal document that provides the list of shareholders within the company, the number and value of shares they all own, the transfer of shares terms and conditions, and so on.

In the event of resigning, you should go through the shareholder agreement to see if there are specific terms and conditions guiding the resignation of a director who is also a shareholder within the company.

Companies Act 2006

The Companies Act 2006 governs the management, running, and major affairs of companies within the UK. To ensure that your resignation process goes smoothly, it is important that you go through this legal Act. The Companies Act provides specific requirements regarding the notice period for the resignation of a director. It also explains the procedures for resigning as a director and how a company can remove a director. Although your company is obliged to the right to notify Companies House about your departure, it remains important that you go through the Companies Act 2006 before resigning.

Will I still have my Information in the Companies House Register after my resignation?

Yes, the director's information is retained in the Companies House register even after they have resigned. Although their status will be differentiated from that of an active director of the company. As such the information is made available to the public as long as the company still exists.

This connotes that if an individual searches for the resigned director on the Companies House website, they’ll find the name and details of the director although it’ll be specified that they are resigned and not active. Some of the information that is retained includes the name of the director, country of residence, appointment and resignation date, nationality, previous role of the director, etc.

Is it Important to Hold a Board Meeting after a Director's Resignation?

Yes, it is important that your company hold a board meeting and record the process of resignation in the minutes of the next board meeting. With that, you would be ensuring that your company keeps adequate records of important events and happenings within the company.

Apart from that, the company would need to update its register of directors by removing the resigned director from it and replacing it with the new director if there is any.

According to the Companies House regulations, all companies must ensure that their register of directors is kept up to date and stored in the company’s registered office.

How to Give Notice of Resignation to the Company as a Director

When you are resigning as a director of a company, you are required to give notice of your resignation beforehand. This notice will be in the form of a letter of resignation and it is essential to go through your company formation document or article of association as appropriate to see if there are required minimum periods for notice and specific methods for resigning.

You can put forward your notice by mail, however, it is better to submit a hard copy form of the resignation letter. The resignation letter usually would contain your resignation statement, a waiver of claims, clarification of the laws and rules, your name, signature, address, and occupation.

Reasons Why Directors Resign

There are several reasons why a director of a company could decide to resign from a company. Just like every other employee could resign from a company, they also have the right to do so. It could be some personal reasons relating to health, the desire to explore more opportunities in the outside world, a need to start a new business, and so on.

In some cases, a company could officially request that a director resign instead of outrightly sacking them. This could be a result of poor performance, conflicts or disagreements, mismanagement of resources, and so on.

1. Liability of a Director after resigning

According to the Companies Act 2006, there are some sets of duties and roles carried out by the director. Upon resignation, they are relieved of their duties and are no longer held responsible for the company’s doings and performance.

However, in some cases, if a company goes into solvency, then it becomes crucial that the actions and conducts of the directors from the last three years be investigated. As such, a director who resigned within the last three years is not exempted.

If it is discovered that the directors didn’t carry out their duties as expected, including the resigned director, then they will all be held liable for it.

In some other cases when a director leaves a company but still contributes to the board affairs, they will be considered as a shadow director and could be held liable to the company if an issue arises.

Frequently Asked Questions

Should a company appoint a replacement after a director resigns

A company doesn't need to appoint a new director if one director resigns. However, if the company has only one director, then it becomes necessary to appoint a new director as required by the Companies Act. Failure to meet up with this within the specified period could lead to some penalties.

Is there a specific format for a director resignation letter?

Generally, there are specific formats as to how you can write a director resignation letter. You might however want to check if your company has a particular format or template they use. The key thing is to keep it professional and clear. You would also want to ensure that the letter contains your name, resignation date, position held, and your statement explaining your resignation decision, etc.

Can I resign if I am the sole director of my company

Yes, you can resign if you are the sole director of your company. However, you will still need to comply with the statutory obligations by appointing a new director as necessary.

Do I need to inform the Companies House when resigning as a director?

As a director who is resigning, you are not required to inform the Companies House. Your company is required to notify the Companies House and this would be done by filing and submitting the form TM01.

Conclusion

As a company director, it is essential that you follow a thorough and official process when resigning from a company. While there are no laws saying a director cannot tender a resignation letter, there are regulations as to how it should be done. This guide therefore has explained the steps, processes, and guidelines that you need to know about resigning as a company director. If you have any questions on how to resign as a company director, you can contact one of our experts for help here.