All you need to know about director resignation

As a director, making the decision to resign can be tricky. Often, it means leaving a business that you love and have put a lot of work into. In this blog, we’re letting you know all you need to know about director resignation.

What is director resignation?

Director resignation involves a director leaving a company. It is a process used by limited companies, which are a separate legal entity from their directors. This means that if the company were in financial trouble, it would not be the director’s responsibility to repay the money; it would be the company’s responsibility. On the other hand, a sole trader would be responsible for their company’s debts.

There are also instances where a limited company director can be held liable to pay back the company’s debts. These would likely be uncovered within a director’s conduct report. This personal liability may result from wrongful trading, such as making preference payments, signing personal guarantees or trading while insolvent.

Most of the time, director resignations are an amicable process and are completed efficiently. However, there are specific actions that need to be carried out.

What is the process of director resignation?

You should ensure that you have thought carefully about the decision to resign before you begin the process. It can be a challenging decision to make, so you need to be sure. It can also be difficult to change your mind when you have already begun the process.

Read all agreements, contracts and Articles of Association

These documents should outline the specific process that you need to complete to resign from your company. You will also need to let your fellow directors of the company know fairly soon. This allows them to prepare documentation and other processes. Additionally, you must provide your resignation in writing to other directors of the company.

It’s likely that you will have to complete a notice period before the resignation, so you’ll need to find out how long this is. It may be outlined in your shareholders’ agreement.

Inform the wider company

It’s not just other directors that you need to inform when resigning from a company. You will also need to let other team members, clients, partners, suppliers and other stakeholders know that you’re leaving. It’s best that this information comes from you rather than someone else.

If you are the main point of contact with these people, you will need to ensure that they have another way of contacting the company. This is a good way to leave business relationships amicably.

Notify Companies House

Companies House is responsible for storing company information, including the director’s details and the company’s registered office. With this in mind, it’s important that you let them know about your intention to resign from the company. This means they can keep the company records up to date.

You can inform Companies House by completing a TM01 form, which is available on the Government website. This will remove your information from the Companies House register.

Maintain relationships

Although this isn’t essential, it’s worth doing what you can to maintain relationships with the company. This means completing the processes correctly and keeping the relevant people informed throughout.

Resignation letter for directors

A resignation letter acts as formal documentation of your intentions. This can make things easier and provides a starting point for your notice period.

Within your letter, you might outline the reasons why you are choosing to resign and also express some gratitude for the company. Again, this can make the process a little easier for you.

There are plenty of resignation letter templates available online, and it may be useful to ask a lawyer to look at it with you before you share it.

director resignation guide

What is the notice period for a director’s resignation?

Many directors will have to complete notice periods after formally announcing their resignation. However, other directors may not be required to. It all depends on the formal processes that your company has in place.

This highlights the importance of checking through the company’s documentation before you begin the process as the resigning director leaving office.

It can be courteous to complete a notice even if you are not legally required to. This can give you the opportunity to hand over your role to someone new.

What are the most common reasons for a director’s resignation?

Company directors will resign from limited companies regularly, and there are a number of reasons why they might choose to. Here are some of the most common reasons for a company director to resign.

  • Retiring
  • Poor health
  • Company disagreements
  • The company has been taken over
  • Relocation
  • Company director disqualification
  • Changing jobs

It can help to promote a smoother process if you are honest about your reasons for leaving the company. However, this information does not need to be given out to everyone at the company, including clients or suppliers.

Sole, individual director resignation: what happens now?

A lot of the time, limited companies only have one sole director, so it’s good to know what happens if this is the case.

If the company only has one director who wants to resign, they must find a replacement as soon as possible. A company operating without a director breaches the Companies Act 2006. Breaching these regulations can lead to many more issues and is always best avoided by the resigning director. Read our blog on:  how long is a director liable after resignation?

We hope this blog has been helpful regarding a director’s resignation. If your company is struggling financially, you must seek professional advice. We’re here to help, so contact us today.

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