Resigning as company director: What happens to my shares?
There are many reasons why you might want to step down as a director of your company, but before you do it’s worthwhile considering whether or not you would keep your shares in the company.
The Articles of Association or Shareholders’ Agreement will typically state what happens when you resign as a director, including how to carry out the resignation in practice, and what you must do with your shares.
This is just the first step, however, as if you do sell your shares you’ll need to come to an agreement with the company on how they should be valued.
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Checking the Articles of Association or Shareholders’ Agreement
The Articles of Association lay down how the company should be run and how to proceed in specific circumstances, such as when a director wants to resign. Similarly, a Shareholders’ Agreement may state the procedure and steps to take.
There could be a clause within the Articles or Agreement covering the departure of a director, whether through resignation or removal from office, which might include what you must do with your shares.
One possibility is that you sell them to other shareholders, but if no instructions are provided or no shareholders want to buy them, you may be able to retain the shares for sale at a later date.
From a financial perspective it may be more beneficial for you to sell your shares, but this depends on a number of factors.
The company’s performance
How is the company performing? Has it reached a trading peak in your estimation, or is it yet to reach its full potential? If the latter is the case and you can hold onto your shares, it may be worthwhile waiting until the share price goes up before you sell them.
Is the company likely to be sold at some point?
Your knowledge of the company and intentions of the other directors might lead you to believe the company will be sold in the future. In this case, as a shareholder you’d be eligible to receive a share of the funds from the sale so, again, it would advisable to keep them if possible.
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Your right to receive dividends
There’s also your right to receive dividends to consider should the company be able to declare them. Dividend income from the company could provide valuable additional income for you, although there’s no guarantee that the remaining directors would be willing or able to consistently declare dividends in the future.
Do you hold any voting powers?
Your shares might entitle you to vote on certain company matters in the future, such as how the business is run and how to resolve a dispute. If your vote is particularly important to you, or could influence a specific situation that you’d want to be involved in, it’s a good reason to retain your shares.
What are your plans for the future?
If you intend to set up a company in your own right that could be construed as a competitor business, you’ll need to make sure there are no restrictions in place, such as a non-compete clause.
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If you resign and sell your shares
If you decide to sell your shares, arriving at a price that’s acceptable to all parties can be difficult. Again, the Articles or Shareholders’ Agreement could make this part of the process easier if a specific share valuation method is stated.
If you can’t reach agreement on price with the other directors, however, you may need to seek support from a professional - a financial expert independent of the company could break the deadlock where share price is concerned, and help you move on with your resignation.
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