How to retire as a director the right way

June 21, 2016

In this blog we look at how to resign as a director the right way.

We have set out in this blog the steps that a director should follow when resigning from their position a director in a company.

1.     Check the terms of service agreement, employment contract or letter of appointment

It most cases, a director will have signed a service agreement, employment contract or letter of appointment. The contract should contain termination of contract provisions. Most contracts will include a notice provision of a period between 1 – 12 months’ notice depending on the type of company and sector. If the contract is silent on this point or there is no contract, then in most cases a week’s notice should be given. If your contract is silent on this point or there is no contract, we recommend that you take legal advice to ensure you serve notice correctly.

2.     Sign a letter of resignation and serve notice of termination on the company

The employment contract or service agreement should contain provisions on how the notice is to be served. The contract is likely to state that the notice should be served in writing to a named person at the company’s registered office address.  Make sure you sign and date your notice and serve it in accordance with the contract. Failure to serve notice correctly could mean that your notice is invalid and you may be in breach of your contract. It is important to get this step correct. If you are in any doubt about the correct way to serve the notice, then speak to a solicitor.

3.     Claims against the company

If there are any disputes or claims against the company to be made, then we recommend that you take legal advice before you serve your notice as a settlement agreement should be signed to record the settlement payments due to the director.

4.     Companies House filings

Make sure that a form TM01 is filed at Companies House otherwise you will still be showing at Companies House and other records as an officer of the company.

5.     Post-termination covenants and confidentiality provisions

Most employment contracts, service agreement and shareholders’ agreements include post-termination covenants. These covenants will often state that a director is not entitled to work for a competitor, poach clients or staff for a set period of time and often in a geographical area. The contract will normally include confidentiality provisions so that a director cannot take customer data or company property without the company’s consent. In addition, the contract is likely to state that a director must return company property. Breach of these provisions could result in a claim being made against the director by the company.

6.     What if you own shares in the company?

Many directors will own a share in the company that they wish to leave. A director should always check the terms of the articles of association and the shareholders’ agreement (if there is one) to see what will happen to the shares when the director resigns. If there is a shareholders’ agreement, then this may state that an automatic share transfer notice will be served when a director resigns. There may also be a clause that states how the shares are to be valued. If there are no share transfer provisions in the articles or shareholders’ agreement and you wish to sell your shares you will need to negotiate with the company to purchase your shares and the agreed terms can be recorded in a share purchase or settlement agreement. We always recommend that a shareholders’ agreement is signed when shares are acquired to avoid any disputes at a later date on how to exit the company. If you are in any doubt on how the share transfer provisions will work on your retirement as a director, you should take legal advice before serving your notice of resignation.

For any further advice on the points raised in this blog, please contact us.

 

Annelie Carver – LawBite LawBrief. For further legal advice you can contact Annelie via our online legal advice portal.