- March 17, 2021
- By Inbar Rabinovitz
- 0 comments
Company transactions for SMEs: Removing a Director / Shareholder – Terminating their employment
As Alan mentioned, there are commercial considerations for why a company may wish to terminate the relationship with a director or shareholder.
When that person is also an employee, it’s important that their rights under the contract of employment and the Employment Rights Act 1996 are not breached because that will open the door to potential claims brought on against the business.
Often, a director will have the relevant clause contained in their contract of employment or service agreement that will call for the termination of the employment relationship if they are removed from the Board and so the company will have to give the adequate notice required and follow any relevant process that might be mentioned. His may also be the case for a shareholder and so the terms of the relevant agreements should always guide the employer.
We would often recommend that when these relationships are brought to an end, a Settlement Agreement is entered into in order to minimise the risk of any potential claim, even if the process was undertaken properly. This will mean that the business pays the employee a compensatory sum of money in exchange for the departing director / shareholder waiving their rights to bring claims in any competent court.
If the contract is silent on the point of terminating the relationship if removed by the Board or the Shareholders, then it is all the more important to consider what internal processes should be relied upon. In these instances, it may be even more beneficial to protect the business by entering into a Settlement Agreement to stave off any potential claims.
Myself and the rest of the employment team are on hand to support you if you are not sure whether this will impact you or the business and we can talk you through the relevant considerations and options so please do contact us:
020 7940 3907
*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*
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