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Resignation of Directors from a Company

A director is an individual who is employed to the Board of a company. A director in a company may resign from his office by offering a written notice to the company. The company must intimate the Registrar within 30 days of resignation in such prescribed form. He also put the fact of such resignation in the report of directors immediately after general meeting by the company. The resignation of a director shall be effective from the date on which the notice is obtained by the company or the date mentioned by the director in the notice, whichever is later.

About Resignation of Non-Resident / Foreign Directors

A foreigner or a non-resident Indian can be a managerial or a non-managerial/independent director of private or public Indian companies.

A director in a company can resign from his office by offering a written notice to the company. The company shall inform the Registrar within 30 days of resignation in prescribed form. He/she shall also put the fact of such resignation in the report of directors which is laid immediately after general meeting by the company.

The resignation of a director shall be effective from the date on which the notice is acquired by the company or the date stated by the director in the notice, whichever is later.

Reasons to change a Company by a Director

Directors and company secretaries may change a company over the life.  Changes will take place for a number of reasons including :

Resignation as a director during retirement

Director's resignation due to severe ill health

A director resigns to join a new job

A director may resign due to disagreement with the other directors or company shareholders

Death of director

Takeover of company

Removal from office – Shareholders may decline to re-elect a director or the shareholders or other directors vote to eliminate a director from the board

Disqualification as a director

Detailed Process of Resigning as a director of the company

It is recommended to check service contract of the director that may include the process to follow when a director resigns. Often this includes both a required notice period and a specific procedure must be followed.

If the service agreement is silent, the articles of association of company or any shareholders' agreement may incorporate provisions to be followed on resignations of director. In some cases a company's articles can need the board to approve any director resignation that can make difficult scenarios in small companies, especially where there is basic disagreement between board members.

When there is not any specific provision, a director may resign at any time by notice to the company. Preferably the notice of resignation should be in writing, though this is not particularly required by law.

When director send notice to the registered office of the company?

In some scenarios, the director might send the notice to the registered office of company. Recorded delivery and retaining the proof of posting may take place where disagreement persists or when the director has uncertainty that the company will punctually update its records and intimate Companies House of the resignation. It is due to remembering that it's the responsibility of the company, not that of the resigning director, to tell Companies House – if the director try to send form TM01 to Companies House, it may be rejected.

When a director resigns, the director and the company may have to consider other issues. They include :

Is the director also a shareholder?

If so, is there a necessity under the articles of association of the company or agreement of shareholders for their shares to be transferred?

Even if the articles or shareholders' agreement do not need the transfer of shares of a retiring director, doing so is frequently the good solution for all parties when a director stops active involvement in the company.

Has the director made loans to the company that is unpaid?

Is the director owed any other amounts by the company?

Frequently the director and also the company may want to take legal suggestion on these issues.

What does a company need to perform when a director resigns from his office?

Directors, company secretaries and LLP members should have notice periods of three months or more which should be offered by the company or LLP to find a replacement.  However in case of death, it is sudden and unexpected.  Director's departure can cause problems for a company and it is best if a company can manage it in an organised way to reduce any disturbance to a minimum.  Companies must consider possessing an up to date plan in place for main directors and also other chief members of staff.

What should a company consider while a director resigns?

Whether a replacement is necessary or will the existing officers be able to cover the work adequately.

If a negotiation or other leaving agreement is essential.

When a director resigns should stop involvement in company instantly and/or go on gardening leave.

>Whether the shareholders are required to be informed instantly regarding resignation of the director

Giving intimation to the bank and eliminating the director from bank and other mandates.

Informing major customers, employees, and suppliers

Informing Companies House about resignation of the directors

Updating statutory registers of the company

Informing the liability insurers of the directors and officers

If the individual is the sole company secretary and another one is essential (for a public limited company) then a replacement is compulsory

If the person is the sole individual director then a replacement is essential urgently according to the needs of the Companies Act 2006

If the person is one of the only two designated members of a LLP  then, a replacement of designated member is immediately needed.

Removal of Directors

The following authorities are in charge for the procedure of removal of directors from the board of directors.

The company in general meeting

A company can remove a director from the board before his term of office expires. They can pass a resolution in a general meeting on special notice. However, there are certain exceptions :

This is not applicable for a director employed by the Central Government.

This is not valid for companies who have approved two-thirds of its directors by the standard of proportional representation.

Directors employed by financial institutions under an agreement like IDBI, IFCI according to their respective acts.

Directors employed by the Board for Industrial and Financial Reconstruction.

Removal by the Government

A director can be removed from office under recommendation from Central Government. The Central Government uses this authority recommended by the Company Law Board/National Company Law Tribunal.

Removal by National Company Law or Tribunal Company Law Board

The Company Law Board or the National Company Law Tribunal may eliminate a director from the board. If a director has been found guilty of any improper conduct like harassment, fraud or any other reasonable cause, he will be removed. The terminated director cannot hold the position of director in any other company for the next five years.

Frequently Asked Questions

Ques: What is the effective date of registration of a director?

Date on which the notice is received by the company or the date specified in the notice whichever is later.

Ques: Within how many days, the registrar is required to be informed by the company?

Within 30 days of date of resignation

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