What you should consider when Resigning a Company Director

Changes to a company’s management team and structure can happen for many reasons. Some common factors that may prompt such changes include:

  • Strategic realignment: As businesses evolve, they may need to restructure their management team to better align with their strategic goals and objectives. This can involve streamlining operations, focusing on core competencies, or entering new markets.
  • Leadership succession: Changes in top-level management often occur due to planned or unplanned leadership transitions. Retirement, promotions, or the need for fresh perspectives can lead to new faces and ideas within the management team.
  • Performance issues: Poor performance or underachievement in certain areas of the business might necessitate changes in management. This could involve removing ineffective leaders and replacing them with individuals who can drive the necessary changes for success.
  • Market conditions: External factors such as shifts in market dynamics, technological advancements, or changing customer preferences may require companies to adapt their management team and structure. This ensures they have the right expertise and agility to navigate these changes effectively.
  • Mergers and Acquisitions: When two companies combine, there is often a need to integrate their management teams and structures. This involves selecting the best talent from both businesses and creating a cohesive leadership framework to drive the newly formed entity forward.
  • Business growth: Rapid expansion or entering new markets can lead to changes in management. Companies may need to hire experienced leaders to manage larger teams, oversee new projects, or handle increased responsibilities effectively.
  • Cultural Shifts: Businesses may undergo cultural transformations, requiring changes in their management team and structure. This ensures that leaders reflect and embody the desired values, behaviours, and vision of the evolving company culture.

These are just a few of the reasons why companies make changes to their management team and structure. Each situation is unique, and the specific drivers for change will depend on the business’ circumstances and goals.

Important considerations when resigning a company director

When resigning directors there are a number of issues to consider before taking action:

Do your company’s Articles allow this?

Firstly, if your company was incorporated prior to the Companies Act 2006 it is likely to require a minimum of 2 directors. There are options available to resolve this, for example, to pass a resolution that changes the current Articles or to adopt the new 2006 Companies Act articles.

Will having a Sole Director cause issues?

Recent High Court cases have highlighted an issue for private companies incorporated under the Companies Act 2006 with only one director. As a result, for companies who adopted the Model Articles at incorporation, there is an inconsistency within those Model Articles which means they may not be able to make decisions legally as they cannot form a quorum. There are options available to resolve this, for example, to appoint a second director or to alter the Model Articles.

How will this Impact on financing?

Finally, some financial institutions look slightly more favourably on having more than one Director so it is advisable to check if there are any covenants in place that would be breached. Similarly, if you are planning to apply for new financial support, it may not be a good time to resign Officers of the company.

How can we help?

If you wish to discuss any of the matters above, our Co Sec team can advise on the appropriate course of action for your particular situation. Please get in touch with our team on 01293 227670.