How Can Shareholders Remove Directors?

The Companies Act 2006 provides a statutory mechanism for shareholders to remove a director by ordinary resolution. Before deciding to remove a director through this mechanism, one should consider the company’s constitutional documents as they may provide for a simpler instrument for the director’s removal.

An important consideration that may be relevant is that the director is often a shareholder and an employee of the company. Where a director is also a shareholder of the company and if the company has a shareholders’ agreement, it is vital that its provisions are consulted prior to taking any steps towards the director’s removal.

The shareholders’ agreement may itself impose contractual obligations on the director to resign in specific circumstances such as breach of duty, failure to attend a specific number of board meetings etc. Though more common to be included in the company’s articles, the shareholders’ agreement also permits directors to have special weighted voting rights.