Key Takeaways
- If you are facing removal as a director with vested shares, the outcome for your shares depends on the exact terms in your company’s articles, shareholder agreement, and any vesting schedule.
- UK law typically protects vested shares after director removal unless your contracts include “bad leaver” or clawback clauses. Always examine every agreement carefully before taking any steps.
- Failing to act quickly if your director share rights are at risk may lead to permanent loss of valuable vested equity—early specialist advice is essential.
- The Companies Act 2006 provides the process for removing directors but does not let companies reclaim vested shares unless the relevant contract terms permit it.
- Good leaver and bad leaver clauses will often determine whether you keep your shares and may dramatically impact your payout or retention.
- Most disputes over director removal and share rights result from unclear, outdated, or missing contract clauses—stress the need for robust documentation and legal support.
- Some schemes have strict deadlines or notice periods to challenge removal or forfeiture actions. Missing these can end your claim, so compliance is critical.
- Our firm is rated Excellent on Trustpilot with over 130 five-star reviews and a 4.9/5 rating.
- Our experienced solicitors can review agreements, explain your director share retention and removal rights, and help you avoid missteps or unnecessary litigation.
For clear advice on your director removal and share rights, arrange a Free Consultation with one of our experts at 0207 459 4037.
What Happens to Vested Shares When a Director is Removed in the UK?
Losing your board position does not automatically mean giving up your vested shares. Whether you keep or lose equity after removal is determined by the specific legal agreements and UK company law, not by boardroom politics or company preference.
The legal rights around director removal and vested shares are defined by the Companies Act 2006 and the detailed wording in your company’s articles, shareholder agreements, and any vesting schedule. The outcome hinges on whether these documents include rules for forced sale, clawback, or forfeiture of shares on director removal.
You must review every relevant agreement and the company’s constitution. These documents take priority over assumptions or informal company practice. Where your agreement is silent or unclear, the default position generally protects your vested shares unless a clear, enforceable clause says otherwise.
If your director position or shareholding is at stake, consult our specialist lawyers immediately before responding or signing any documentation.
What Are Vested Shares and How Do They Work for Company Directors?
Vested shares are shares a director owns outright, having satisfied specific requirements such as length of service, hitting certain milestones, or remaining until a significant event. UK companies use vesting as a way to incentivise directors and senior employees to remain and contribute long-term value.
Typical vesting methods include:
- Time-based vesting: Shares vest after a minimum “cliff” period—such as one year—then vest monthly or annually until fully earned.
- Exit-based vesting: Shares vest when there is a company sale, IPO, or other exit event.
- Milestone-based vesting: Achieving targets, such as £1 million in turnover, triggers partial or full vesting.
Vesting schedules and their terms should be spelt out in signed agreements, and all directors should know their rights and obligations when it comes to vested shares in the event of removal.
Staying fully informed about your vesting status and the impact of removal is essential to avoiding unexpected loss of equity.
Does Director Removal Automatically Forfeit Vested Shares in the UK?
Director removal in the UK does not, by default, mean automatic loss of vested shares. Unless there is an explicit clause in a contract or the company’s articles, a removed director retains fully vested shares.
- Vested shares: Owned outright unless your agreement includes a clear leaver or clawback provision.
- Unvested shares: Typically lost if the director leaves before meeting conditions.
Most shareholder agreements and employee share schemes include detailed post-termination provisions—such as forced transfer or buyback if removed for “bad leaver” reasons. However, unless these are clearly drafted, the law favours the protection of property rights in vested shares.
It is crucial to review every signed contract, the company’s articles, and option plan rules. If you fail to comply with notice periods for challenging removal or share forfeiture, you may lose your chance to retain equity.
You may also find our article on Shareholder Disputes: Legal Solutions for Resolving Business Conflicts helpful for minimising internal disputes and protecting your shareholding.
What Does the Companies Act 2006 Say About Director Share Rights on Removal?
The Companies Act 2006 governs how directors are removed in England and Wales, but does not create an automatic right for companies to reclaim or forfeit vested shares. Key sections include:
- Section 168: Allows shareholders to remove a director by ordinary resolution at a general meeting, with 28 days’ notice and the opportunity for the director to make representations.
- Share rights: The Act separates the role of director from that of shareholder. It does not provide for automatic loss of shares upon removal as a director, unless the articles or a contract so stipulate.
- Due process: Directors have the right to object to notice and challenge any process that departs from statutory requirements.
Where a compulsory share transfer or forfeiture is imposed beyond what is contractually allowed or in a procedurally unfair manner, a director may have rights to challenge under section 994 (unfair prejudice) and claim remedies before the court.
Understanding these legal distinctions and protections can prevent costly errors in negotiations and when responding to removal actions.
How Do Good Leaver and Bad Leaver Clauses Affect My Vested Shares?
Good leaver and bad leaver clauses are crucial in determining whether a director keeps their vested shares after leaving the company. These clauses must be clear in your agreement and are highly scrutinised in disputes.
- Good leaver: Usually includes resignation with notice after a set period, redundancy, death, incapacity, or retirement. Good leavers retain their vested shares or are paid market value.
- Bad leaver: Applies to those dismissed for gross misconduct, voluntary resignation before a vesting date, or breaches of restrictive covenants. Bad leavers may have to forfeit vested shares or sell them back at nominal value.
The definition and triggers for good or bad leaver status determine share retention and payout rights. Ambiguities in these clauses are a leading source of shareholder and director litigation.
Review every leaver trigger in your agreements before leaving or entering negotiations to maximize your financial outcome.
Can a Company Claw Back or Cancel Vested Shares After Board Removal?
A company’s ability to reclaim, claw back, or cancel vested shares post-removal is only enforceable if the relevant agreements provide for it. Clawback and forfeiture provisions must be lawfully drafted, clear, and cannot be arbitrary.
- Clawback clause: Requires a director to transfer or return vested shares to the company after certain triggers, such as gross misconduct or breach of agreement.
- Forfeiture clause: Permits the company to cancel shares entirely, often with no compensation, under narrowly defined circumstances.
These mechanisms are only valid if set out clearly in the scheme, contract, or articles, and only if every step is lawfully followed—failure to do so often results in successful court challenges by former directors.
If you suspect your vested shares are being targeted unfairly, seek immediate advice from our litigation solicitors to preserve your legal position.
Step-by-Step: How to Protect Your Director Shares if Facing Removal
- Review All Agreements and Company Documents:
Collect every contract, vesting schedule, share plan, and current articles of association relevant to your shares. - Identify Leaver, Forfeiture, and Clawback Provisions:
Check exactly what triggers a forced sale or loss of shares, and note the specific events that could make you a “bad leaver.” - Act Promptly on Notice and Challenge Deadlines:
Many agreements require objections or claims within 7–30 days of notice, sometimes less. - Seek Urgent Specialist Legal Advice:
Early legal review prevents costly missed windows and strategic missteps. - Negotiate or Mediate for the Best Result:
Settlement before litigation is often possible if you act quickly and know your leverage. - Prepare Evidence for Any Dispute:
Keep copies of all agreements, correspondence, and notices—it is essential if litigation occurs.
Taking these steps at the earliest sign of risk offers the best chance of keeping your shares or maximising buyout value.
You may also find our guide on Vested Shares and Unfair Dismissal Claims useful if your departure is related to an employment dispute.
What Laws and Deadlines Apply to Removal of Director With Vested Shares?
The legal process and deadlines for removing a director with vested shares involve several sources:
- Companies Act 2006, Section 168: Formal process for board removal requires at least 28 days’ notice and gives the director rights to make written and oral representations.
- Contractual Schemes: Shareholder, vesting, or option agreements can specify strict time limits—7, 14, or 30 days—to object to removal, trigger vesting, or challenge forfeiture.
- Scheme/Option Rules: Company share plans may have additional requirements for triggering accelerated vesting or buybacks.
- Claims and Litigation: Unfair prejudice petitions have a 6-year limitation for contractual claims, but practical deadlines for responding to removal or forfeiture notices are much shorter.
Delays can be fatal to your claim, so always consult us immediately upon receiving notice of director removal or changes to your shareholding.
What Do the Courts Say About Director Removal and Vested Shares?
Recent cases highlight the courts’ approach to director removal and vested shares—focusing on the wording of agreements, procedural fairness, and protecting minority rights. Here are some instructive decisions:
| Case | Facts | Outcome | Key Point |
|---|---|---|---|
| Re Coroin Ltd [2013] EWHC 2344 (Ch) | Director’s shares disputed after removal as “bad leaver” | Court enforced contract wording, safeguarded share rights where ambiguity found | Agreements are strictly interpreted, ambiguities resolved for fairness |
| Fisk v TFG Ltd [2022] EWHC 1479 (Ch) | Good/bad leaver share buyback dispute | Good leaver paid market value, clear contract language decisive | Precise contract drafting avoids litigation |
| Croly v Good [2010] EWHC 1 (Ch) | Forfeiture after director removal | Forfeiture declared invalid due to procedural errors | Process mistakes can void share clawbacks |
Well-drafted and properly followed contracts are upheld by courts. Ensuring your own agreements are clear and consistently applied reduces the risk of costly legal action.
Common Risks and Mistakes When Leaving a Company as a Director with Shares
Directors often lose vital share rights due to common errors, including:
- Failing to obtain and review every current shareholder and vesting agreement before resigning or being removed.
- Ignoring deadlines to object to removal or forfeiture, causing automatic loss of equity.
- Relying on verbal assurances regarding share retention not reflected in formal documents.
- Not reading the fine print on leaver definitions hidden in old contracts or legacy share plans.
- Neglecting to document negotiations or exit agreements in writing for future evidence.
- Delaying advice until after removal, missing opportunities to negotiate or challenge the company’s actions.
Meticulous record-keeping and preparation can make the difference between preserving or losing substantial equity.
Checklist: Protecting Your Director Share Rights Before and After Removal
- Gather and review every agreement and plan relevant to your equity, including articles, option plans, and side letters
- Identify the presence and triggers for “good leaver,” “bad leaver,” clawback, or mandatory transfer
- List and diarise every deadline for notice, objection, or claim
- Keep your own, independently signed copies of every critical document
- Engage specialist legal advice at the first sign of dispute or removal
- Maintain clear records of all negotiations, offers, and correspondence regarding your shares
- Prepare evidence and written arguments in advance if a dispute is likely
No step is too small. Following this checklist provides practical protection and strengthens your legal position when negotiating or litigating director removal or share forfeit events.
Our Winning Approach to Removal of Director With Vested Shares
Our litigation team specialises in defending directors’ equity in high-value, complex disputes involving removal, clawbacks, bad leaver triggers, and unfair prejudice claims across England and Wales. We deliver:
- Fast, confidential reviews of all share and removal documentation to assess your position
- Strategic negotiation and mediation with companies and shareholders to protect or maximise your shareholding
- Drafting and improvement of shareholder agreements and vesting terms to reduce future risk
- Senior solicitors available without call centre delays
- Proven negotiation and litigation strategies trusted by PLC boards, founders, and private equity directors
- Numerous five-star Trustpilot reviews and industry recognition for dispute resolution excellence
Ask about our fixed-fee and no-win-no-fee options for directors facing removal or equity disputes.
We focus on compliance, evidence, and robust contract review so you can defend your interests and recover the best possible outcome.
Frequently Asked Questions
Do I lose my shares if I’m removed as a director in the UK?
Generally, no. Removal from the board does not mean automatic loss of vested shares unless the articles, a shareholder agreement, or share scheme specifically states so.
What’s the difference between vested and unvested shares for directors?
Vested shares are earned and owned outright by the director. Unvested shares have conditions attached and are usually forfeited if those conditions are not met.
Can vested shares be clawed back after I’m removed from the board?
Only if a valid clawback or bad leaver provision is included in your contract or scheme, and only if the process is followed correctly.
What are ‘good leaver’ and ‘bad leaver’ clauses, and why do they matter?
These determine if you retain or lose your shares when leaving the company: good leavers usually retain value; bad leavers may forfeit shares or be paid less.
How quickly must I respond to a removal or share forfeiture notice?
Timelines are set by contract; responses are often required within 7 to 28 days. Waiting too long can mean losing your rights.
Can I challenge my removal or share forfeiture in court?
Yes. If proper procedure is not followed, or if agreements are misapplied, you may claim for breach of contract or bring a section 994 unfair prejudice petition in court.
If I sell or transfer my shares on removal, do I have any rights to future company value?
Not unless you have an express written agreement covering deferred consideration, bonus shares, or profit participation. Always negotiate these terms before agreeing to any exit.
How can your lawyers help with director removal and vested share disputes?
Our solicitors provide urgent, fixed-fee consultations, strategic negotiation, and robust court representation for directors seeking to preserve their shareholding or secure a fair exit.
Get Expert Legal Advice on Director Removal and Vested Shares
Acting quickly and understanding the contracts, articles, and deadlines that govern your share rights is essential. Directors who delay or rely on assumptions risk losing valuable equity—sometimes permanently—through avoidable error or missed objection periods.
Our expert litigation solicitors can review your situation, clarify your options, and act fast to protect your interests—whether by negotiation, mediation, or court action. We are trusted by hundreds of directors and shareholders for our robust, results-focused approach.
Call us on 0207 459 4037 or use our online form for a Free Consultation with a senior solicitor.
