Directors (Appointment, Removal & Disqualification) — SQE1 FLK1 Business Law and Practice

Four friends are setting up a private company to run a coffee shop. Three want shares and nothing else. The fourth, who is 17, will manage the shop and is willing to be the only director. Their accountant says it will not work, because a company must always have a board of at least two. Is the accountant right? No.

He is wrong, and the reason he is wrong sets up the whole topic. Two numbers do the work here, and neither is the one he reached for. This is a subject made almost entirely of statute, which is good news for you. The rules are precise, the section numbers repeat, and the traps are the same every time. Keep the coffee shop in mind.

Here is the route. Who can be a director, and how many. Then appointment, and the filing deadline that catches people out. Then service contracts, and the two-year rule. Then removal, which is the heart of it. Then what the public register holds about a director, and what it hides. And last, disqualification and shadow directors.

Start with the numbers, because they are free marks. Under s.154 of the Companies Act 2006, a private company must have at least one director. A public company must have at least two. There is no maximum. Under s.157, nobody under 16 can be appointed, and an appointment made in breach of that is void, not merely voidable. Your 17-year-old manager is fine. A 15-year-old would be a nullity, whatever his parents signed.

Then s.155. At least one director must be a natural person, a human rather than a company. Corporate directors are still lawful, and a company may have several of them, but they cannot make up the whole board. There must always be a human who can be held to account.

And here is a trap worth having. Section 155 has been in force since 2008. The separate ban on corporate directors in the Small Business, Enterprise and Employment Act 2015 was never brought into force. The further restrictions in the Economic Crime and Corporate Transparency Act 2023 are still awaited. So corporate directors are permitted. Just not alone.

Appointment next. The first directors are named in the incorporation documents and hold office from the date of incorporation, not from when they start work. After incorporation, the model articles let a new director be appointed either by ordinary resolution of the shareholders or by a decision of the directors. Article 17 for a private company, article 20 for a public one.

Note the word either. The board can do it on its own, and the shareholders have a concurrent power, not an exclusive one. A board decision is a majority decision at a quorate meeting. Two directors in favour and one against carries it. No general meeting needed.

Two practical steps before the appointment is filed. The appointee must have verified their identity with Companies House, which has been mandatory for new directors since 18 November 2025 under the Economic Crime and Corporate Transparency Act 2023. And they must consent to act. Then the company notifies the registrar within 14 days.

Now the counting, and this is where careless candidates drop a mark. The 14 days begin with the day of the appointment, not the day after. Back to the coffee shop. Say they appoint a second director on 1 March. What is the deadline? 14 March. Not 15 March. And you cannot wait for the annual confirmation statement, which confirms what is already on the register rather than reporting a change.

Service contracts. A director's service contract is the contract under which the company employs the director, with terms about pay, duration, notice and benefits. Under s.188, a company may not agree a director's service contract with a guaranteed term of more than 2 years without approval by resolution of the members. Ordinary resolution, and it must come before the contract is entered into.

So what is the guaranteed term? It is the period during which the contract continues otherwise than at the company's instance, plus any period of notice the company must give. Where a contract has both, the two are aggregated. A fixed term of 2 years, then 12 months' notice. Guaranteed term? Three years. Over the line, and the members must approve it first.

And if nobody asks the members? Section 189 supplies the answer, and it is precise. The offending provision is void to the extent of the contravention. And the contract is deemed to contain a term entitling the company to terminate at any time on reasonable notice. Note who gains that right. The company, not the director.

What does not happen is just as important. The contract does not quietly run for 2 years and expire. The guarantee falls away and the company acquires a right to terminate that the contract itself never gave it. Everything else stands, so the director is still paid for the period actually worked. Members may also inspect these contracts under s.228.

Removal, and this is the heart of the topic. Section 168: a company may by ordinary resolution remove a director before the expiration of their period of office, notwithstanding anything in any agreement between the director and the company. Read that last clause slowly. A fixed term does not save you. A clause saying you can be removed only for gross misconduct does not save you.

But two qualifications matter, and both are examined. The first is a device. Three shareholder-directors, 100 shares each. The articles say that on a resolution to remove a director, that director's shares carry three votes each. Two of them move to remove the third. He casts 300 votes against their 200, and the resolution fails. That is Bushell v Faith, from 1970.

Why does that work when the section says notwithstanding anything? Because s.168 governs the power to remove. It says nothing about how many votes each share carries, and a company is free to attach weighted voting rights by its articles. The power survives. The arithmetic defeats it.

The second qualification is money. Removal does not breach the Act, but exercising it may breach the director's service contract and give rise to a damages claim. That is Southern Foundries v Shirlaw, from 1940. Effective removal and breach of contract are not alternatives. They happen at the same time.

Now the procedure, and keep two sections apart, because the paper mixes them. Section 312 governs the notice. Special notice of at least 28 clear days must be given to the company of a resolution to remove a director. The same goes for a resolution to appoint someone in their place. That is all s.312 does. The director's own protections come from somewhere else.

They come from s.169. The company must forthwith send the director a copy of the notice. The director is entitled to be heard on the resolution at the meeting, whether or not they are a member. And written representations of reasonable length must be circulated to the members. Then it passes on an ordinary majority, more than half the votes cast.

Which produces one of the cleanest rules in company law. Under s.288, a written resolution cannot be used to remove a director, or to remove an auditor under s.510. Why not? Because the director has the right to be heard and to have representations circulated, and the written resolution procedure cannot deliver either. A general meeting is unavoidable, however inconvenient.

Then compensation. Look at s.168(5)(a). Removal does not deprive a director of compensation or damages payable for the termination of the appointment. Whether anything is due depends on the service contract. But be careful with approval. Section 217 requires a members' resolution for a payment for loss of office, and it applies to all companies, not just public ones.

Two exceptions rescue the ordinary case. Section 220 disapplies that requirement for a payment made in good faith in discharge of an existing legal obligation. A compensation clause agreed at the outset is exactly that. And s.221 excepts small payments not exceeding £200 in aggregate. So a contractual entitlement is normally payable without a further resolution. A thank-you payment on retirement is not.

Get that wrong and the consequences bite. If an unapproved payment is made anyway, s.222 makes the recipient hold it on trust for the company. And any director who authorised it is jointly and severally liable to indemnify the company for the loss.

The public register next, and this is the part older precedent files get wrong. Since 18 November 2025, companies no longer keep their own register of directors, register of directors' residential addresses or register of secretaries. Those local registers were abolished by the Economic Crime and Corporate Transparency Act 2023, and the information sits centrally with the registrar. The register of members survives. That one you still keep.

What does the registrar hold? Full name and any former names. Date of birth. Nationality and business occupation. A service address. A usual residential address. The dates of appointment and of ceasing to hold office. And confirmation that the director's identity has been verified.

Now the distinction that decides questions. The service address is public. The usual residential address is protected information under ss.240 to 242, and it is filed but not published. Only the month and year of the date of birth appear publicly, never the day. So a director who gives the registered office as her service address keeps her home address off the record. Delivering an address is not publishing it.

Disqualification. The framework is the Company Directors Disqualification Act 1986. A disqualified person must not act as a director, directly or indirectly, or take part in the management of a company. The grounds include unfit conduct in relation to an insolvent company. Persistent breach of company law. Fraudulent or wrongful trading. Failing to keep proper accounting records. And criminal convictions connected with company management.

The maximum for unfit conduct is 15 years. Persistent breach of company law tops out at 5 years, and less serious cases sit in the 2 to 5 year band. And a warning about how the fitness test bites. In the Barings case, a trader in Singapore ran up unauthorised positions that destroyed the bank. The directors said they knew nothing about it. Disqualified anyway. Ignorance of your own company is not a defence.

Break a disqualification and two things happen. First, it is a criminal offence under s.13 of that Act, with a maximum of 2 years' imprisonment, a fine, or both. Second, under s.15, the person becomes personally liable for the relevant debts of the company, meaning the ones incurred while they were acting. Run a company for eighteen months while banned and rack up £200,000, and that £200,000 is yours.

And you cannot get round it with a nominee. A disqualified person who tells the appointed director what to sign is taking part in management, whatever the company calls him. As for the deals themselves, transactions entered into by a disqualified person are not automatically void. The company may still be bound, and third parties in good faith are protected. It is the disqualified director who pays.

Which brings us to shadow directors. A shadow director is someone who is not formally appointed, but in accordance with whose directions or instructions the appointed directors are accustomed to act. Accustomed is the word that decides cases. It means habitual compliance, a settled pattern of doing as told, not occasional agreement with a good idea.

So a shareholder who writes to the board twice a year with suggestions, some adopted and some rejected, is not a shadow director. He offers advice, and the board exercises its own judgement. Professional advisers giving advice in their professional capacity are outside the definition too. A board that drops a plan on being told it would be unlawful is taking legal advice seriously, not obeying orders.

But get on the wrong side of the line and the exposure is real. The general duties apply to a shadow director where and to the extent that they are capable of applying, under s.170(5). Wrongful trading expressly catches a shadow director, under s.214(7) of the Insolvency Act 1986. And a shadow director can be disqualified for unfit conduct like anyone else.

A word on how SQE1 tests this. You will not be asked to recall case names or section numbers. You get a scenario, five answers, and one instruction: pick the best. The section numbers in this episode are scaffolding for the rules, not the thing being tested.

If you keep only three. Section 168, because the power to remove by ordinary resolution cannot be excluded by any agreement. Then s.188 and s.189, because a guaranteed term over 2 years needs the members, and the price of skipping them is a right to terminate that lands on the company. And Bushell v Faith, because weighted votes are the one thing that beats a removal resolution in practice.

Traps the examiners set. One: the counting. The 14 days begin with the day of the event, not the day after it. An appointment on 1 March must be notified by 14 March. And there is no gentler internal deadline, because the company's own register of directors no longer exists.

Two: written resolutions. A director cannot be removed by one, however many shareholders sign. Three: the addresses. Both a residential address and a service address go to the registrar. Only the service address is published. Filing is not publishing.

Four: the effect of missing the members' approval. The contract does not quietly expire after 2 years. The guarantee is void, and the company gains a right to terminate on reasonable notice it never bargained for.

Five: shadow directorship. The question is always who is really making the decisions. If the board can accept or reject what it is told, that is advice. If the board is accustomed to follow, that is direction, and the professional adviser exception will not save someone who has gone beyond advising.

Quick check. A private company has already called a general meeting for 30 April to deal with other business. On 15 April, shareholders delivered to the registered office a notice of their intention to move an ordinary resolution at that meeting removing a director. No other notice of the proposal has ever been given to the company. Can the resolution properly be put to that meeting?

Three candidate answers. One: yes, because an ordinary resolution needs only fourteen clear days' notice. Two: no, because special notice of at least 28 clear days was not given. Three: no, because a resolution to remove a director requires a special resolution. Pause here if you want a moment.

The answer is two. Special notice is required of a resolution to remove a director, and it means notice given to the company at least 28 clear days before the meeting. From 15 April to 30 April is barely a fortnight. Nor can the shortfall be cured here. The saving provision only helps where the company calls the meeting after the special notice arrives, and this meeting had already been called.

Why the others fail. One confuses two different notice periods. The fourteen-day rule governs the notice calling the meeting itself, not the special notice this resolution needs. Three reaches the right outcome on the wrong basis. Removal is by ordinary resolution, and what is missing is the special notice, not a bigger majority.

Five things to take away, and the coffee shop covers the first. One: a private company needs one director, a public company two, at least one must be a human, and nobody under 16 can be appointed.

Two: the board can appoint, and the registrar must be told within 14 days beginning with the day of the appointment. Three: a guaranteed term over 2 years needs an ordinary resolution first, and a fixed term plus a notice period are added together to find it.

Four: removal by ordinary resolution cannot be excluded by any agreement, it needs 28 clear days' special notice, and it cannot be done by written resolution. Five: acting while disqualified is a crime and a personal liability for the debts, and a shadow director is caught by the same net. Next time, Directors' Duties.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.