Directors play a critical role in any company. They make management decisions about almost everything from staffing to finance to the trading operations of the business. By contrast, shareholders make decisions about the control of the company. For example, shareholders make decisions about appointing and removing directors. This article will discuss how shareholders can remove a director from a company and how this process differs between private and public companies.

Removing a Director

Sometimes shareholders may disagree with the decisions of a director and want them removed. If a director breaches their director’s duties, shareholders can bring legal action against them for breach of director’s duties.

For example, they may breach their director’s duties by failing to disclose a conflict of interest or by engaging in insolvent trading.

However, bringing legal action against a director is costly and time-consuming. Sometimes shareholders want directors removed regardless of whether they have breached their duties.

Private Companies

The process for removing a director will be specified in a private company’s constitution or shareholders agreement. Where there is no company constitution or shareholders agreement, the replaceable rules from the Corporations Act will apply. These rules are called replaceable rules because a company’s constitution can replace them. However, where there is no company constitution, these rules will apply.

If the replaceable rules apply, the shareholders of the company can remove a director from office by ordinary resolution and appoint another person in their place. An ordinary resolution will pass if there is a majority vote by the shareholders (50% or more). Each shareholder has one vote for each share held. However, the company constitution may allow the holders of different classes of shares to enjoy special voting rights.

Public Companies

Unlike private companies, the rules in a public company’s constitution will not apply when removing a director. Shareholders should follow this process to remove a director:

  1. two months before the shareholder meeting to remove the director, the shareholders must give notice of their intention to pass a resolution for the director’s removal. They must also give the director notice as soon as practicable;
  2. the director then has a right to put a case for their remaining in office by giving a written statement or responding verbally to the motion at the meeting;
  3. after the motion is discussed and the director has made a case for remaining in office, the shareholders hold the vote; and
  4. the director will be removed if a majority (i.e. 51% or more) of shareholders vote for their removal.

Key Takeaways

If shareholders of a company wish to remove the company director the process for doing so will vary depending on whether the company is private or public. In both cases, a majority vote of 51% or more will be sufficient to approve a director’s removal. However, this will not be the case for private companies if their constitution states otherwise. If you have any questions about the removal of company directors, get in touch with LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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