Can a sole director resign in a limited company?

What happens if the sole director of a company quits?

If you are the sole director of a UK limited company that you no longer need or is struggling financially, you might consider resigning. It’s an approach some directors choose to take to absolve themselves of the responsibility and financial obligations of running a company without formally closing it down - but what about the legal duties you must meet?

In this article, we explore whether you can resign as the sole director of a limited company, the likely consequences if you do and the other routes you can take.

Can a sole company director resign?

The Companies Act 2006 dictates that all private limited companies must have at least one active director. Although it’s uncommon, some businesses also have clauses in their Articles of Association that prevent a sole director from leaving until a replacement has been found. 

If you do resign as the sole director of a limited company, you are in breach of the legislation. At that point, Companies House will contact the shareholders to remind them of their responsibilities and ask that they appoint a new director within a given timeframe. The company’s shareholders can call a general meeting to appoint one or more new company directors. If they do not have the power to do so, they can ask the court to call a meeting on their behalf.  

If the shareholders do not appoint a director by the deadline or if the director who resigned was the only shareholder, Companies House will start the process of winding it up by striking it from the official register. In this case, any assets the company still owns will be sold or become the property of the Crown via a process called Bona Vacantia. 

What can happen if I resign as the sole director of a limited company?

A sole director and shareholder who resigns will be regarded as a de facto director by authorities such as HMRC and the Insolvency Service, which could bring negative consequences.

If the company has debts, the Insolvency Service can investigate the conduct of the directors without having to restore it to the register. It could then make you personally liable for those debts and any other debts that may have occurred.  

Personal guarantees are another potential issue. Finance providers often ask company directors to sign personal guarantees when they agree to provide funding. Even if you resign as a director, the guarantee remains in place and the lender could pursue you personally to repay the loan.   

How to walk away from a limited company

If you are the sole director of a company with other shareholders, you should inform the shareholders of your wish to resign so they can start the process of finding a replacement. 

Alternatively, if you are the only director and shareholder, rather than resigning, you could sell the company as a going concern. If you cannot sell the company, you should take the necessary steps to close the company properly using one of the following procedures.

Voluntary Dissolution

Voluntary Dissolution, also known as Company Strike Off, is the simplest and most cost-effective way to close a solvent limited company. You can apply online and pay a small fee, and as long as you meet the requirements, the company will be struck off the official register after three months. 

Members’ Voluntary Liquidation (MVL)

If you want to close a solvent limited company with more than £25,000 of retained profits and assets, a Members’ Voluntary Liquidation is usually the most tax-efficient way. You must appoint a licensed Insolvency Practitioner to liquidate the company on your behalf. They’ll sell the assets, and if you qualify for Business Asset Disposal Relief, you’ll only pay 10% tax on the proceeds.

Creditors’ Voluntary Liquidation (CVL)

If the company cannot afford to pay its debts, rather than resigning and risking personal liability issues, you can close it via a Creditors’ Voluntary Liquidation. A liquidator will sell the company’s assets to repay your creditors and any remaining debts will be written off. You may also be able to claim director’s redundancy pay, with payouts in the UK averaging around £10,000. 

Need advice?

Are you concerned about the future of your company or its financial situation? Resigning and abandoning your business could make things worse. Instead, contact our experienced team for a free, same-day consultation or arrange a meeting at one of our UK offices. We will discuss your situation and advise you on how to close your business and protect your position.