Rules When Appointing or Removing a Company Director

In Short
Appointing or removing a company director requires approval from the company, consent from the individual (where applicable), and notification to ASIC. The exact process depends on the company’s constitution, shareholders’ agreement, or the replaceable rules under the Corporations Act 2001 (Cth). If businesses fail to follow these procedures, the appointment or removal may be ineffective and may expose the company to penalties.

Tips for Businesses
Before appointing or removing a director, review your company constitution and any shareholders’ agreement to confirm the required process. Ensure the relevant resolution is properly passed and recorded in the company’s minute book. Obtain written consent or resignation where necessary and update ASIC within 28 days. Maintaining clear records helps demonstrate compliance and avoid disputes.

Summary
This article explains the legal process for appointing and removing company directors for business owners in Australia. It outlines the relevant requirements under the Corporations Act 2001 (Cth) and company governing documents, and is prepared by LegalVision’s business lawyers, a commercial law firm that specialises in advising clients on corporate governance matters.

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On this page

• Key Steps
• Governing Rules
• Appointing a Director
• Removing a Director
• Resignation of a Director
• Are There Other Ways to Remove a Director of a Company?
• Public vs Private Company
• Meetings and Resolutions Using the Replaceable Rules
• Consent and Resignation
• Updating ASIC
• Director Disqualification and Automatic Vacancies
• Director Removal in Specific Scenarios
• Temporary Director Appointments
• Key Takeaways
• Frequently Asked Questions

Many business founders go into business with a partner (or partners) and set up a private company where each founder is a director and a shareholder. However, it is not uncommon for co-founders’ ideas and interests to diverge at some point. This can also occur in public companies that have many members and a large board of directors. This article unpacks the common issues and procedures surrounding how your company can appoint or remove a company director from office.

Key Steps

You need to take several steps to appoint or remove a director of your company.

These can be broken down into three categories, including:

• asking for board and shareholder approval from the company;
• gaining consent from the individual; and
• notifying the Australian Securities Information Commission (ASIC). 

It is important for you to comply with these steps. Indeed, if you do not follow these processes, you may risk the chance of the appointment or removal of directors not being fully effective. Additionally, there could be a risk of fines due to non-compliance. Furthermore, directors of a company carry considerable control and responsibility. Therefore, it is important that the company meets these requirements. Additionally, it is crucial that your company maintains good record-keeping practices so that all major changes are documented adequately. 

Governing Rules

Your company will need to comply with its own decision-making requirements, which are usually contained in the shareholders’ agreement or your company’s constitution. These documents may include provisions concerning how to remove a company director from office. If you do not have either of these documents, then the replaceable rules in the Corporations Act will apply. 

Appointing a Director

When appointing a new director, the replaceable rules allow: 

• shareholders to appoint a director by passing an ordinary resolution (50% majority vote) at a general meeting; or 
• the board of directors to appoint a director by the same 50% ordinary resolution. 

The company’s shareholders’ agreement or constitution may provide additional ways in which you can appoint directors and/or override this process altogether.

Removing a Director

There is also a replaceable rule that allows the shareholders to: 

• remove a director by passing an ordinary resolution at a general meeting; and 
• appoint a replacement director at the same time. 

This is only possible for companies that rely on the replaceable rules and do not have a constitution or shareholders’ agreement that displaces this rule. If your company has a constitution or shareholders’ agreement, you should check whether there is a process for removing Directors without them tendering a resignation.

Resignation of a Director

A director of a company can also resign by providing the company with written notice. 

While a director is very important to the operation of the company, they cannot be locked into that position without the ability to leave the company. Therefore, it is important to have a couple of knowledgeable directors so that you leave the company in capable hands if a director chooses to resign.

Are There Other Ways to Remove a Director of a Company?

In addition to having a director resign from the company with written notice or removing a director by passing an ordinary resolution per the replaceable rules (if applicable), the company constitution can provide other valid mechanisms to remove a director. However, it is important to note that these mechanisms will only be valid if they do not conflict with the rules set out above in the Corporations Act.

Public vs Private Company

The specific rules that you need to follow will depend on whether you are a private or public company. Private companies have the most flexibility when it comes to appointing or removing a director.

As a private company, the replaceable rules enable you to remove a director by a resolution of the company. However, if your company constitution has modified or replaced this rule, then you may be able to remove a director by other means. 

On the other hand, a public company can only remove a director from office by passing an ordinary resolution of shareholders. Unlike a private company, a public company can do so regardless of the company’s constitution or any agreement between the company, the director and its members.

Meetings and Resolutions Using the Replaceable Rules

You can appoint and/or remove directors through a general meeting, whether in accordance with the replaceable rules or your company’s shareholders’ agreement.

To pass a resolution to remove a director from office, you must give a notice of intention to pass this resolution to the company. You must do this at least two months before you schedule the meeting to be held. After the company receives the notice, it must then give the director a copy of the notice as soon as possible.

In response, this director has the right to put their case to the shareholders by providing a written statement and speaking at the meeting. The company must circulate this written statement to the shareholders.

How to Pass a Resolution to Remove a Director Under the Replaceable Rules

Once you have issued this notice of intention, you must pass the resolution at a company meeting. The meeting must satisfy your company’s requirements, which will likely require:

• properly convening the meeting with enough notice for shareholders, typically 21 days; and
• satisfying the meeting attendance quorum.

You must pass the resolution by an ordinary majority, which requires that more than 50% of the shareholders of the company support the proposition to appoint or remove the director.

Therefore, a shareholder or shareholders who hold 51% or more of voting power can pass the resolution to remove another director, even if that other director does not want the board to remove them. In situations where there is a 50%/50% shareholders’ split, you should follow the dispute resolution procedure set out in the agreement to resolve the argument.

This vote must be logged in the company’s minute book and signed by the chairman of the meeting. It is also not essential for the shareholders to hold a physical or virtual meeting. They can also pass a circulating resolution, which is a document circulated and signed by all shareholders entitled to vote, stating that they agree to pass the appointment or removal of a director.

Consent and Resignation

Once your company approves the decision to appoint a specific director in a manner consistent with the Replaceable Rules or applicable constituent documents, that director must formally provide their consent to act as director in the form of a signed letter. This letter is a “consent to act”.

It is a simple document that is: 

• signed by the director; and 
• states that the individual provides their consent to act as a director. 

Moreover, this consent to act should also state that they have not been disqualified from acting as a director. If the director is resigning on their own accord, they will need to provide a signed letter of resignation to the company. If the shareholders or directors have the power to remove a director, you can remove them by: 

• the applicable vote at a general meeting; or 
• signing a circulating resolution as discussed above. 

Updating ASIC

As part of the process of appointing or removing a director, you should update ASIC of this change. 

If a director is resigning, they: 

• can inform ASIC themselves; and
• will need to provide a copy of the signed resignation letter. 

If this does not occur, your company will need to update ASIC within 28 days to avoid a late fee. You can do this through your ASIC Connect account, using your corporate key. You will need to insert:

• your company details; and
• the day the director was appointed or resigned.

Director Disqualification and Automatic Vacancies

Automatic Disqualification

Under the Corporations Act, certain circumstances can lead to a person being automatically disqualified from managing corporations. These include:

1. bankruptcy or personal insolvency agreements;
2. conviction of certain offences, including fraud; and
3. disqualification by court order or ASIC.

If a director becomes disqualified, they must immediately cease to act in that capacity. The company must then take steps to formally remove them and update ASIC accordingly.

Automatic Vacancy Provisions

Many company constitutions include provisions for automatic vacancy of a director’s position. Common triggers include:

• mental incapacity
• extended absence from board meetings without permission
• becoming an employee of a competitor
• losing required qualifications (e.g., professional licenses)

Director Removal in Specific Scenarios

Removing a Director Who Is Also a Shareholder

When a director is also a significant shareholder, removal can be more complex. While the general process remains the same, consider the following:

• review any shareholders’ agreement for special protections
• be prepared for potential legal challenges
• consider negotiating a buy-out of the director’s shares

Removing a Director in a Family Business

Family businesses often face unique challenges when removing directors. Key considerations include:

• emotional factors and family dynamics
• succession planning implications
• potential impact on family relationships outside the business

Temporary Director Appointments

In some situations, temporary director appointments may be necessary. This can occur due to:

• sudden resignation or incapacity of a director
• need for specific expertise during a project or crisis

Temporary appointments should follow the same formal processes as permanent appointments, including ASIC notification. However, the appointment letter should clearly state the term or conditions of the temporary role.

Directors' Duties Complete Guide

If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.

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Key Takeaways

Before taking any action to remove a director from office, you should consult your company’s governing documents, such as: 

• your constitution, 
• the shareholder agreement; and 
• the rules under the Corporations Act. 

It is important that your directors and shareholders understand how these processes work. Importantly, the rules and requirements differ depending on whether the company is public or private. You need to make sure your company has properly documented this removal or appointment by passing the appropriate resolution. The director that you appoint must provide signed consent to act. If they are resigning on their own, they will need to provide a signed resignation. Finally, your company will need to update ASIC within 28 days.

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