Removal Of Directors
A corporation's shareholders own the business, but its directors supervise its administration and operations. There may be instances where a director decides to step down or where shareholders decide to remove them for poor performance or other reasons. Removing a director is a big corporate move that needs to be done carefully and in strict accordance with the legal guidelines set forth by the Companies Act of 2013 or any local regulations that may be relevant. A fair, transparent, and company-interested process must be followed whether the process is started by a regular resolution, board resolution, or court order.
The removal of a director from a company typically involves a formal process governed by the company's articles of association and relevant legal frameworks. It often begins with a decision made either by the shareholders or by the board of directors themselves, depending on the company's governance structure. Reasons for removal can range from breaches of fiduciary duties to conflicts of interest or simply a loss of confidence in the director's ability to fulfill their duties effectively. The process usually includes notifying the director of the intention to remove them, providing them with an opportunity to respond or contest the decision, and then formalizing the removal through a vote or resolution. Once removed, the director may have rights to compensation or other entitlements as per their contract or applicable laws. Overall, the removal of a director is a significant decision that requires careful consideration of legal implications and potential consequences for the company and its stakeholders.
Reason for removal of director
- Being rejected based on the standards outlined in the Companies Act
- More than a year has passed since the last board meeting.
- Engaged in transactions that are forbidden by Section 184 of the Companies Act.
- Being barred from taking part by an order issued by a tribunal or court.
- Conviction by a judge for a crime carrying a minimum six-month sentence.
- Failure to adhere to the rules and specifications set forth in the Companies Act of 2013.
- Deciding to leave the board on voluntary resignation.
Methods for Director Removal from a Company
Shareholder Vote:
Shareholders typically have the authority to remove directors through a majority vote at a general meeting. The specific requirements (such as the percentage of votes needed) may vary based on the company's constitution or relevant jurisdictional laws.
Board Resolution:
If permitted by the company's articles of association or bylaws, the board of directors itself may have the authority to remove a director. This is more common in companies with provisions allowing for director removal by the board, subject to specific conditions or procedures.
Court Action:
In some jurisdictions, shareholders or directors may apply to a court for an order to remove a director. This could be due to breaches of fiduciary duties, misconduct, or other justifiable reasons as provided by the law.
Resignation:
Directors may choose to resign voluntarily from their position. While not a method of removal by others, a director's resignation effectively ends their term.