Retirement is a significant milestone in anyone's career, including company directors. As a company director considering retirement, it’s important to understand the process of retiring as a company director to ensure a smooth and legally compliant transition.
In this article, we’ll explore the critical aspects of retiring as a director, providing you with practical steps and insights to navigate the process successfully.
What happens when a director retires?
When a company director decides to retire, there are several important steps and considerations to keep in mind:
Check the Shareholders’ Agreement
A Shareholders’ Agreement is a document that outlines the rights and responsibilities of the company's shareholders. When a director retires, the Shareholders’ Agreement may have provisions regarding appointing and removing directors.
For instance, if the Shareholders’ Agreement stipulates that certain shareholders have the right to appoint a director, their approval may be necessary for the reappointment of a retiring director. You should review the Shareholders’ Agreement and seek legal advice to understand your rights and any obligations related to retirement.
Review the Service Agreement / Employment Contract
If you’re an employee of the company, you should check your Employment Contract / Service Agreement to see if there are any specific provisions that apply to your employment. You may have a set notice period set out. This may be different from the notice period to retire as a director set out in the company’s articles of association.
Consider shares/share options
If you hold shares or share options in the company that you are retiring from, you should check to see whether serving notice will trigger a sale of those shares and valuation of the shares.
Notify the board of directors
You should communicate your intention to retire to the board of directors. This can be done formally during a board meeting or through written notice. Depending on the company's Articles of Association, the board may need to hold a meeting to acknowledge your decision.
There may be a number of notice requirements to be followed depending on whether you are simply a statutory director/officer of the company and/or an employee of the company.
Director retirement by rotation
In some businesses, directors may be appointed for fixed terms and retire by rotation. This means that at each Annual General Meeting (AGM), a certain number of directors retire, but they may be eligible for reappointment. This process ensures regular rotation within the board, promoting fresh perspectives and accountability.
Reappointment of director retiring by rotation
If you wish to continue serving on the board, you’ll need to be reappointed at the AGM. However, this decision is subject to the approval of the shareholders. During the AGM, shareholders will have the opportunity to vote on the reappointment. You should be prepared to address any questions or concerns raised by the shareholders. Open communication and transparency are vital in gaining shareholder confidence and support.
Companies House notification
It’s essential to notify Companies House about your retirement. This involves completing the appropriate forms, such as Form TM01, and providing your details and the effective date of retirement. Companies House should be informed within 14 days of the change.
The transfer of responsibilities
Before retiring, you should ensure a seamless transfer of their responsibilities to other directors or employees. A clear handover process will help maintain continuity and avoid disruptions in the company's operations.
Board resolution for retirement of director
Your retirement should be documented through a board resolution. The resolution should clearly state your decision to retire, the effective date of retirement and any arrangements for reappointment if applicable. This resolution should be kept in the company's records as part of its corporate governance documentation. The company should also update its Register of Directors once the retirement has taken place.
Director & Officer (D&O) Insurance for retired directors
As a retired director, you need to consider the implications of D&O Insurance. D&O Insurance provides liability coverage for directors and officers against legal actions related to their duties. When a director retires, they may still be exposed to potential claims arising from actions taken during their tenure.
To ensure comprehensive coverage, you should review the D&O Insurance policy and ascertain whether it extends coverage to retired directors. If not, you may need to explore additional liability insurance to safeguard your personal assets.
Reappointing a retiring director
If you wish to continue serving on the board, you’ll need to be reappointed at the AGM. However, this decision is subject to the approval of the shareholders. During the AGM, shareholders will have the opportunity to vote on the reappointment. You should be prepared to address any questions or concerns raised by the shareholders. Open communication and transparency are vital in gaining shareholder confidence and support.
Director resignation vs. retirement
It’s important to distinguish between director resignation and retirement. A director may resign for various reasons, such as pursuing other opportunities or personal circumstances. In contrast, retirement typically implies stepping down from the board due to reaching a certain age or completing a fixed term.
The process for director resignation and retirement may have some similarities, but the legal implications can be different. When retiring, you need to adhere to the company's Articles of Association and relevant provisions of the Companies Act to ensure a compliant and smooth transition.
Get legal assistance from LawBite
Retiring as a company director is a significant decision that requires careful planning and execution. By following the steps outlined in this article and adhering to the Companies Act and Articles of Association, you can retire with confidence, knowing they have taken the necessary legal and governance steps.
We understand the importance of retirement planning for company directors and are here to guide you through the process. With our expertise, you can retire as a director with peace of mind, knowing your business interests are protected and positioned for continued success. To speak to one of our corporate lawyers about the process of stepping down as a director, book a free 15 minute consultation or call us on 020 3808 8314.
