Director Changes in Private Companies Resignation vs. Removal

Director Changes in Private Companies: Resignation vs. Removal

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In the corporate world, directors are responsible for supervising various companies’ processes towards success. Nonetheless, there might be occasions which would compel a modification to the nomination of the board members. Recognizing the difference between resignation and dismissal of a director is critical in order to have a smooth succession and maintain proper company’s management.

Resignation: A Director’s Voluntary Exit / Directors Resignation

Directors Resignation refers to a case where a director has voluntarily left his position. This may be due to personal factors, professional obligations, or the pursuit of other interests. The directors resignation process involves the following steps:

  1. Notification: Directors resignation is required to send a formal notice to the company secretary.
  2. Documentation: The company secretary drafts the required documents like Form 49, a letter of resignation, and a board resolution.
  3. Acceptance: For the resignation to be accepted, the rest of the directors have to pass a board resolution.
  4. Submission: The company secretary prepares Form 49 and the resolution and on approval, submits them to Suruhanjaya Syarikat Malaysia (SSM).

Removal: A Shareholder-Initiated Action

On the other hand, “removal” refers when the company’s shareholders or members decide to dismiss the director of the position. This is most likely due to issues surrounding the director’s competency, conduct, or performance. The removal process entails the following steps:

  1. Special General Meeting: A special general meeting ought to be constituted solely for the purpose of contemplating and voting on the ouster of the director.
  2. Ordinary Resolution: The special general meeting ought to pass a resolution for the ouster of the director based on an ordinary majority of the members present and voting.
  3. Constitutional Provisions: A company’s constitution can prescribe certain procedures or reasons for dismissing a director. Hence, these stipulations will need close monitoring and compliance.
  4. Written Resolution Exception: Unlike resignation, directors’ removal is not permitted by written resolutions (even if proposed by the Board).

Key Differences

The table below summarizes the key differences between directors resignation and removal of a company director in a private company:

FeatureDirectors ResignationRemoval
InitiationDirector’s voluntary decisionShareholder or member action
ProcedureFormal notification, documentation, acceptance, and submission to SSMSpecial general meeting, ordinary resolution, and adherence to constitutional provisions
Resolution TypeBoard resolutionOrdinary resolution
Written ResolutionPermissibleNot permissible

The two processes that lead to the departure of a director are directors resignation and directors removal; however, their initiation and manner of procedure are markedly diverse. However, resignation constitutes a director driven action and removal of a director by shareholders. It is vital for directors and shareholders to grasp such finances in order to ensure an easy shift while safeguarding the overall governance structure.

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