As a result of their partnership (or partners), business founders often form private companies where they each serve as directors and shareholders. However, at some point co-founders’ ideas and interests may diverge, which is not uncommon for public companies with a large board of directors and many members. We explain how your company can appoint or remove company directors in this article, which discusses some of the common issues and procedures involved.
Steps to Take
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Appointing or removing a director of company your company requires several steps.
There are three categories to consider:
- Obtaining approval from the company’s board and shareholders;
- Obtaining consent from the individual; and
- Bringing it to the attention of the Australian Securities and Investments Commission (ASIC).
In fact, you may risk not being able to effectively appoint or remove directors if you do not follow these processes. If you fail to comply with these steps, the appointment or removal of directors may not be effective. Non-compliance could lead to fines and a loss of control for the company’s directors. As a result, meeting these requirements is extremely important. A good record-keeping practice is also crucial to ensuring that all major changes are documented.
The governing Rules
It is your company’s responsibility to follow its own decision-making requirements, which can usually be found in your company constitution or shareholders’ agreement. If you do not have either of these documents, you will use the replaceable rules in the Corporations Act. These documents may contain provisions on how to remove directors from office.
Choosing a Director
It is possible to appoint a new director using replaceable rules if:
- Ordinary resolutions (50 percent majority vote) at general meetings to appoint directors;
- An ordinary resolution of 50% is required to appoint a director.
Shareholders’ agreements and constitutions may include additional ways of appointing directors. It is common for founders or certain shareholders to appoint directors.
Getting a Director Removed
Shareholders can also replace a rule that allows them to:
- During a general meeting, remove a director by ordinary resolution;
- Replace the director at the same time.
In addition to resigning in writing, directors can also provide written notice of their resignation to the company.
Even though directors play a vital role in the company’s operation, they cannot be locked into the position without the ability to leave. If a director decides to resign, you should have a few knowledgeable directors so that the company will be in good hands. It is also best to have an even number of directors, as this will prevent a deadlock on votes when deciding.
How Can a Public Company Remove a Director?
Other valid mechanisms for removing a director can be provided by the company constitution, in addition to having a director resign with written notice or removing a director by passing an ordinary resolution per the replaceable rules. There is, however, a requirement that these mechanisms do not conflict with the rules set out above in the Corporations Act if they are valid.
Comparing Public and Private Companies
It will depend on whether you are a private or public company when it comes to appointing or removing directors. Private companies have more flexibility.
A company’s replaceable rules allow you to remove a director by a resolution of the company. However, if its constitution has modified or replaced this rule, then you may be able to remove a director in another way.
The board of directors of a public company, on the other hand, can only remove a director by passing an ordinary resolution. Public companies are able to do so regardless of their constitution or any agreements between them, the company, the directors, and their members, unlike private companies. The shareholders of a public company, however, are the ones who can remove a fellow director.
Organizing meetings and approving resolutions
As per the replaceable rules or your shareholder’s agreement, directors can be appointed and/or removed at a general meeting.
A director must be removed from office by a resolution that is passed without notice to the company. The company must provide the director with a copy of the notice at least two months before the meeting is scheduled. After the company receives the notice, it must send a copy to the director within a reasonable amount of time.
This director can respond to the shareholders’ request by providing a written statement, and speaking at the meeting. The company must distribute this written statement.
Read More:
When Should a Director Be Removed From a Private Limited Company?
