Can a Managing Director Stop a Director’s Salary?

Question from Fi, Can a Managing Director Stop a Director’s Salary?

Answer from AI:

In the UK, the ability of a Managing Director like Robert to unilaterally stop a Director’s salary or dividend, such as Judy’s, without a board meeting is generally limited by company law and the company’s own articles of association. Here’s a general overview of the legal framework and considerations involved:

Understanding Director’s Remuneration

1. Company Articles of Association:
– The articles of association are the rules governing the management of a company. They often outline the process for setting and altering directors’ remuneration.
– Typically, any changes to a director’s salary or dividends require board approval, as outlined in these articles.

2. Board Meetings and Resolutions:
– Decisions regarding directors’ remuneration usually require a resolution passed at a board meeting.
– The Companies Act 2006, which governs company law in the UK, emphasizes the need for proper procedures and resolutions for such decisions.

3. Fiduciary Duties:
– Directors, including managing directors, have fiduciary duties to act in the best interests of the company and its shareholders.
– Unilaterally stopping a director’s salary without proper procedure could be seen as a breach of these duties.

Dividends and Their Distribution

1. Declaration of Dividends:
– Dividends are typically declared by the board of directors and must be approved by shareholders.
– A managing director cannot unilaterally decide to withhold dividends from a director.

2. Legal Requirements:
– The distribution of dividends must comply with the Companies Act 2006, which requires that dividends be paid out of profits available for that purpose.

Legal Recourse and Considerations

– Consultation with Legal Professionals:
– If Judy believes her salary or dividends have been unjustly withheld, she should consult with a legal professional to explore her options.
– Legal advice is crucial to understand the specific terms of the company’s articles of association and any employment or service contracts in place.

– Potential Legal Actions:
– Judy may consider legal action if her rights as a director are being infringed upon, such as seeking a court order to enforce her remuneration rights.

Additional Resources

– For more detailed information on directors’ duties and company law, you can refer to the [Companies Act 2006](https://www.legislation.gov.uk/ukpga/2006/46/contents).
– The UK Government’s [Companies House](https://www.gov.uk/government/organisations/companies-house) provides resources and guidance on company management and compliance.

In summary, while a managing director has significant influence, they typically cannot unilaterally stop a director’s salary or dividends without following proper procedures and obtaining necessary approvals. Legal advice is recommended to navigate these complex issues.