Director Resignation and Company Closure
In some cases, one director wants to resign while the other director wants to continue running the company. The resigning director can simply resign, leaving the remaining director in charge. To close a business in Delaware, pay all debts, close accounts, and maintain records. As a one person company centers around one person, the owner, director and shareholder are usually the same person.
Handling Director Disputes
What happens when two directors fall out? When two directors mutually decide to close down their company, a Members’ Voluntary Liquidation allows a solvent company to be closed down. The assets are distributed to the 50/50 shareholders. Using a Members’ Voluntary Liquidation, the funds distributed are subject to lower Capital Gains Tax rather than higher Income Tax.
If reconciliation between directors is not possible, options include closing the business or one director buying the other’s shares. A shareholders’ agreement outlines how shareholders can resign and sell shares. It sets out share valuation and sale to other shareholders. With 50/50 directors and shares, an unresolved dispute causes ‘deadlock’. Professional advice on possible business closure or share purchase is recommended.
Directors’ Duties and Shareholder Rights
Directors have fiduciary duties of trust, loyalty and good faith to the company, members and stakeholders. Minority shareholders holding 5% voting shares can force a meeting to consider overruling directors’ decisions. Shareholders can also take legal action if directors act improperly. On insolvency, directors must prioritize creditors over shareholders. Many reasons lead to director removal – resignation, illness, death, disqualification or contract breach. The removal procedure depends on the reason.
Non-executive directors monitor executive directors, involve in planning not daily management.
Liquidation Processes and Director Responsibilities
Can one director put a company into liquidation? Directors can certainly put a company into liquidation, and in many circumstances, it is their duty to do so. Liquidation is not limited to companies who are experiencing financial distress.
How does a 50-50 shareholder liquidate a company? A 50% shareholder can place their company into liquidation by applying to the courts for a winding up petition on ‘just and equitable’ grounds.
Who Can Put A Company Into Voluntary Liquidation? A Creditors’ Voluntary Liquidation (CVL) is initiated when the directors of a company determine that the business is insolvent.
Liquidation is a formal way of closing a company down. While an ex-director has no responsibility for the decisions of the board or for the actions of the company after his or her resignation, the ex-director continues to be responsible for his own actions, and the actions of the board, in the period up until his resignation takes effect.
If you’re a director of a company that has gone into insolvent liquidation, you’ll be banned for 5 years from forming, managing or promoting any business with the same or similar name to your liquidated company. There are 3 exceptions that allow you to reuse a company name.
If not swiftly addressed, director disputes can escalate and put pressure on a business and its financial position. When a company is insolvent, directors have certain duties and obligations.