Can Directors Remove Other Directors? Director Removal In Australia

If your business is run through a company, your directors have a lot of power - but they also have a lot of responsibility. When relationships change (or performance issues arise), one of the biggest questions we hear from small business owners is how a director can be removed.

Maybe you’ve got a co-founder who’s checked out. Maybe there’s a dispute about money, strategy, or risk. Or maybe you’ve uncovered conduct that you just can’t ignore. Whatever the reason, removing a director isn’t just an “internal decision” - it’s a legal process, and if you get it wrong, you can trigger shareholder disputes, unfair prejudice claims, breaches of the Corporations Act, and expensive clean-up work with ASIC.

Below, we’ll walk you through how director removal works in Australia, when it’s possible, and the practical steps you should take to protect your business as you move forward.

What Does “Removal of Director” Mean (And Why It Matters For Small Businesses)?

A director is someone appointed to manage a company’s business and affairs. In a small business, directors are often also the owners (shareholders), and sometimes also employees.

Removing a director usually means the person stops being a director of the company. That’s different from:

• Removing a shareholder (changing who owns shares in the company).
• Terminating employment (ending an employment relationship - if the director is also an employee).
• Removing signing authority (e.g. banking access or delegations).

For small businesses, the reason this matters is simple: when one of your directors is no longer aligned with the business, leaving them in place can create real risk - they can still participate in decisions, access information, and owe (and exercise) legal duties.

At the same time, director removal can be a flashpoint for disputes, especially if the director is also a shareholder or founder. That’s why it’s important to understand what your company’s governing documents say and to follow the correct process.

Can Directors Remove Other Directors?

This is the heart of the question: can directors remove other directors?

In most cases, directors do not have an automatic right to remove another director just because the board wants them gone. In Australia, removal is often controlled by:

• the Corporations Act 2001 (Cth)
• your company’s constitution (if you have one)
• any shareholders agreement you have in place
• your company’s shareholding and voting power

That said, there are situations where a director can be removed through board processes, depending on how the company is set up (and what your constitution permits).

Removal By Shareholders (Most Common For Proprietary Companies)

For most Australian small businesses (proprietary companies), the most common way to remove a director is by a resolution of shareholders (members). The Corporations Act specifically allows this for proprietary companies (see section 203C), and your constitution/shareholders agreement may add extra requirements (like notice periods or voting thresholds).

Practically, if the people who own the majority of voting shares want a director removed, they can often do so - but you need to do it properly, with the right notices, resolutions, and ASIC steps.

For public companies, the process is more formal (section 203D), including “special notice” requirements and giving the director a chance to put their case to members, so it’s important not to assume the same steps apply across company types.

Removal Under The Constitution Or Shareholders Agreement

Your constitution and shareholders agreement can set out extra rules about when and how a director can be removed (or when they automatically cease to hold office).

For example, they might say a director automatically stops being a director if:

• they resign from employment (if they were appointed as an “executive director”)
• they stop holding a minimum number of shares
• they become insolvent or are convicted of certain offences
• there’s a “bad leaver” event

If you’re not sure what your company relies on day-to-day (replaceable rules vs constitution), it’s often worth checking whether you have a Company Constitution and what it actually says in the director appointment/removal clauses.

Removal By The Board (Possible, But Not Always)

Some constitutions allow other directors to remove a director by board resolution (or allow removal in certain circumstances). Whether this is available depends on your company’s documents.

This is where business owners can get caught out: you might assume “the board can vote them out”, but if your constitution doesn’t allow it, that decision may not be valid.

How Does Removal of Director Work In Practice?

The exact steps depend on your company’s setup, but for many small businesses, the process looks like this:

1) Check Your Company’s Documents First

Before you do anything, check:

• your constitution (if your company has one)
• any Shareholders Agreement (especially if there are co-founders or investors)
• any director service agreement or employment contract

This helps you confirm:

• who has the power to remove a director
• what notice must be given
• what voting threshold is required (simple majority vs special majority)
• whether there are “good leaver/bad leaver” consequences that trigger share transfers

2) Decide Which Removal Path Applies

Depending on your documents and your structure, removal may happen via:

• shareholder resolution (common for proprietary companies, and generally the statutory pathway under the Corporations Act)
• board resolution (only if constitution allows)
• automatic cessation event (as defined in your constitution/shareholders agreement)
• director resignation (often the simplest path when it’s possible to negotiate)

Even if you’re confident about the outcome, it’s worth planning the “people side” too - removing a director often impacts staff morale, customers, suppliers, and even lenders.

3) Hold The Meeting And Record The Decision Properly

If the director is being removed via a resolution, you’ll need to properly hold the relevant meeting (board or shareholders) and pass the resolution in line with your company’s rules and (where applicable) the Corporations Act.

This usually means:

• giving notice of the meeting (and ensuring the notice meets your constitution’s timing and delivery requirements - for example, member meeting notice periods can differ between proprietary and public companies)
• ensuring quorum is met
• ensuring voting is counted correctly
• preparing minutes and keeping them with the company records

Good record-keeping is critical. If there’s a dispute later, your minutes and resolutions are often the first documents that get reviewed.

4) Update ASIC And Your Company Records

Once the director is removed (or resigns), you generally need to notify ASIC and update your internal company registers.

In most cases, ASIC should be notified within 28 days of the change (commonly via Form 484). Remember: even if everyone “agrees” a director is gone, if ASIC still shows them as appointed, third parties may still rely on that information.

5) Deal With Flow-On Issues (Banking, Contracts, IP, Access)

The legal removal is only one part of the puzzle. You should also consider:

• removing access to bank accounts and accounting platforms
• changing passwords and admin access (email, domains, social accounts)
• updating authority levels for key contracts and supplier accounts
• checking who owns intellectual property and business assets

If your business has any uncertainty about who owns what - for example, who owns the brand name, customer database, or software - it’s a good time to do an IP health check and make sure assignments/licences are properly documented.

Common Small Business Scenarios (And The Legal Traps To Watch Out For)

Removing a director can look straightforward on paper, but the “real world” scenarios often create legal complications. Here are a few common patterns we see.

Co-Founders Who Are Both Directors And Shareholders

If your company has two equal co-founders (50/50 shareholding) and you’re both directors, removal can become deadlocked. You might not have the votes to pass a resolution to remove the other director.

In these cases, the solution often isn’t just “director removal” - it’s usually a broader shareholder dispute strategy, potentially including:

• negotiated resignation and settlement
• share sale/buyout terms
• decision-making deadlock clauses (if you have them)

This is one of the biggest reasons having a tailored shareholders agreement early matters: it can set the rules before the relationship breaks down.

A Director Who Is Also An Employee

Removing someone as a director does not automatically terminate their employment.

If they are also an employee (for example, a general manager who sits on the board), you will need to manage the employment relationship separately - ideally with a clear Employment Contract and a compliant process if termination is required.

Mixing these concepts up is a common mistake. If you only remove them as a director but leave employment unclear, you can create confusion around pay, duties, authority, and workplace rights.

A Director Who Refuses To Resign

Sometimes the simplest path is a resignation - but if a director refuses, you’ll need to rely on your formal removal mechanisms.

When tensions are high, it becomes even more important to:

• follow your documents and the Corporations Act requirements carefully (including any required notice or meeting rules)
• avoid “informal” decisions or shortcuts (they often backfire)
• manage communications to staff and stakeholders thoughtfully

Concerns About Misconduct Or Breach Of Duties

If you’re considering removal because of misconduct, conflicts of interest, or suspected breaches of directors’ duties, you should act carefully and document the reasons and process.

In some cases, you may also need to consider whether there are obligations to report issues, preserve evidence, or protect company assets immediately (especially where financial control is involved).

This is also the point where you may want to consider broader governance clean-up, such as tightening the company’s decision-making rules in the constitution and ensuring you have fit-for-purpose resolutions and approvals processes.

What Legal Documents Help Prevent Director Removal Disputes?

If you’re reading this because you’re already in a difficult situation, don’t worry - there are still steps you can take now to manage risk and move forward. But if you’re trying to prevent</em future problems, the right documents can make a huge difference.

Here are the documents small businesses commonly rely on to reduce risk around director appointments and removal:

• Company Constitution: sets the ground rules for how your company runs (including appointing/removing directors, meeting rules, voting thresholds, and decision-making powers).
• Shareholders Agreement: sets practical rules between owners, including what happens if someone wants to exit, there’s a dispute, or there’s a deadlock.
• Director Service Agreement: clarifies a director’s role, expectations, confidentiality, restraints (if appropriate), and what happens on exit.
• Employment Contract: important if a director is also working in the business day-to-day, so you can separate governance from employment rights and obligations.
• IP Assignment or Licence Agreements: helps ensure your company (not an individual founder) owns core business IP, which matters a lot during founder exits.
• Confidentiality / NDA arrangements: useful when negotiating an exit so sensitive information stays protected.

If your business is growing, it can also be a good time to review how documents are signed and who can bind the company (especially if you’re changing directors). For more complex signing arrangements, it helps to understand how execution works under company law, including signing under section 127.

Key Takeaways

• Director removal is a legal process - and in small businesses, it often overlaps with shareholder disputes, employment issues, and ownership of assets/IP.
• In most cases, directors can’t simply remove other directors unless the constitution allows it; for many proprietary companies, removal is commonly done by shareholders under the Corporations Act (and public companies have additional statutory notice requirements).
• Your constitution and shareholders agreement usually determine the real-world pathway, including notice requirements and voting thresholds.
• After removal, you should update ASIC (often within 28 days), your company registers, and also manage practical access issues (banking, systems, contracts) to protect the business.
• Strong documents like a Company Constitution and Shareholders Agreement can prevent deadlocks and reduce the risk of costly disputes later.

If you’d like help with the director removal process or putting the right company documents in place, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.