How to remove a director as a minority shareholder
Insight

As a minority shareholder, removing a director from the company you have invested in can be a challenging but necessary step to protect your interests. Directors hold significant power over the day-to-day management of the company, and their actions can have profound implications for its success and governance. While your rights as a minority shareholder are limited compared to those of majority shareholders, there are steps you can take to address this issue effectively.
This guide outlines how you can go about removing a director from your company.
1. Review the Articles of Association
Your first step should be to carefully examine the company’s Articles of Association. These documents outline the rules that govern the internal management of the company, including the procedures for removing directors.
The Articles of Association which companies may adopt vary - for example, some companies operate under the Model Articles provided by the Companies Act 2006 (the Act) and others may have adopted more complex and bespoke provisions. The type of Articles of Association in place will affect your course of action.
Key points to consider may include:
- The requirements for convening and holding general meetings.
- Whether special provisions apply to the removal of directors (including whether shareholders have specific powers to remove a director).
- Any entitlements the director might have, such as severance payments, in the event of removal.
Understanding these rules will help you identify the most appropriate steps to take.
2. Use your Statutory Rights under the Act
The Act offers shareholders statutory rights to remove a director. Whilst these are cumbersome to operate and come with certain limitations, they are a valuable tool as they cannot be excluded by the company’s articles of association or any shareholders’ agreement.
Under Section 168 of the Act, shareholders can remove a director by passing an ordinary resolution at a general meeting (it cannot be done by written resolution). To initiate this process, you must give the company special notice of the resolution at least 28 clear days before the meeting.
However, as a minority shareholder, you are unlikely to have the voting power to pass the resolution alone. You will need to secure the support of other shareholders to reach the required majority under this statutory route.
3. Build support among other shareholders
Given your minority position, building a coalition with other shareholders is crucial. Engage with others who share your concerns about the director’s performance or behaviour and work together to make a compelling case for their removal. Focus on objective issues such as the director’s failure to deliver results, mismanagement, or breaches of duty. These points are more likely to gain traction with other shareholders than personal disagreements or grievances.
4. Focus on breaches of fiduciary duty
Directors are legally obligated to act in the best interests of the company (among other duties which Directors are bound by under the Act). If the director in question has breached their duties – which may include failing to exercise reasonable care, engaging in conflicts of interest, or acting against the company’s interests – you may have grounds to seek their removal. Documenting and presenting clear evidence of such breaches will strengthen your case when discussing the matter with other shareholders or presenting it at a meeting.
5. Explore alternative dispute resolution
Before escalating the issue, consider whether alternative dispute resolution (ADR) methods, such as mediation or negotiation, could achieve the desired outcome. Directors are often open to resolving disputes through ADR, as it is less adversarial, less costly, and helps preserve relationships within the company. This approach could lead to the director stepping down voluntarily, avoiding the need for a formal vote or litigation.
6. Examine the shareholders’ agreements
Many private companies will have a shareholders’ agreement in place, which is an agreement between a company’s shareholders that sets out how the company’s affairs should be managed and outlines certain shareholders' rights and obligations.
If there is a shareholder agreement in place, it is important to review its terms carefully alongside the articles as they may well provide alternative (and sometimes easier) route to a removal. Such agreements often include specific provisions about the removal of directors or mechanisms for resolving disputes among shareholders. For example, the agreement might provide for the buyout of shares held by the director or require arbitration in the event of significant conflicts.
7. Action for unfair prejudice
If all other avenues fail, you may need to pursue legal action. Under Section 994 of the Act, you may be able to petition the court on the grounds of unfair prejudice if the director’s actions have unfairly harmed your interests as a minority shareholder. The court has the power to order a range of remedies, including the removal of the director. However, this route should be approached with caution due to the significant costs and time involved.
Conclusion
Removing a director as a minority shareholder requires careful planning, a solid understanding of your rights, and strategic collaboration with other shareholders. While the process can be complex, it is not insurmountable if you act diligently and seek professional advice where necessary.
Farrer & Co’s Corporate team recently advised a minority shareholder on possible routes to remove a director from a company which did not have a shareholders’ agreement in place nor specific powers in the company’s articles of association for shareholders to remove a director. The shareholder in question sought to exercise their statutory power under Section 168 of the Act to remove the director. Key considerations for this shareholder included: (i) maintaining regular contact with the other shareholders of the company to ensure sufficient support was available to pass an ordinary resolution to remove the director, and (ii) ensuring adequate time was set aside to account for the minimum statutory period required under the Section 168 route.
At Farrer & Co we specialise in advising minority shareholders on governance issues and disputes. If you are considering removing a director, we can provide tailored legal support to help you achieve your goals.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2025