Case Description

According to the Articles of Association, A Limited Company has a total of three directors. At a recent board meeting, director Zhang had a dispute due to his different business philosophy from other directors. In a fit of anger, Zhang said that I would quit. The other directors thought that what Zhang said was angry and ignored it. Later, after careful consideration, Zhang decided to resign as a director, so he submitted his resignation to the company's legal representative and other directors through email, WeChat group, and mail. Afterwards, Zhang quickly joined Company B as the general manager. After learning about it, Company A sued the court on the grounds that Zhang's resignation as a director did not take effect and that Company A and Company B were engaged in similar businesses, demanding that Zhang continue to perform his director duties and transfer his income from Company B to Company A. So, is there a legal basis for Company A's lawsuit?

Lawyer Analysis

The current Company Law does not specify the relationship between directors and the company. The mainstream view in judicial practice holds that the relationship between directors and the company is a contractual relationship in legal nature, and Article 933 of the Civil Code, which states that both the principal and the trustee can terminate the contract at any time, should apply, granting directors the right to terminate the contract at any time, that is, the right to resign at any time.

1. To whom should the resignation of a director be addressed?

According to the mainstream view in current judicial practice, since the relationship between directors and the company belongs to a commission contract, the director's unilateral termination of the commission contract relationship is naturally proposed to the company. Due to the fact that the company is a proposed legal person, and the legal representative represents the company, in the case where a director is not concurrently serving as the legal representative, the director can directly issue a resignation notice to the legal representative of the company. If the director also serves as the legal representative, a resignation notice should be sent to the board of directors or other directors at this time. Of course, if the company's articles of association or company regulations clearly stipulate that a designated person should formally receive notification information on behalf of the company, a resignation notice can also be sent to that designated person.

2. What form should a director's resignation take?

Due to the fact that the board of directors is the executive body of the company, responsible for all specific operations and management of the company, changes in directors are related to the company's internal governance and external transactions. If a change occurs, it usually requires a company resolution and an external registration change procedure. Therefore, it is best for a director to resign in writing.

3. Does the resignation of a director require company approval?

Due to the contractual relationship between directors and the company, the right of resignation of directors belongs to the right of formation. The mainstream view in judicial practice adopts the principle of effective delivery. A director's resignation usually takes legal effect when the notice of resignation is delivered to the company and does not require approval from the company, except as otherwise provided by law and the company's articles of association, or when the director withdraws the resignation with the unanimous consent of the company and the intending director.

4. Are there any restrictions on the resignation of directors?

Due to the importance of the board of directors for the normal operation of the company, the law imposes restrictions on the resignation of directors.

According to Article 45 (2) of the Company Law, if a director fails to be re elected in a timely manner upon the expiration of his term, or if a director resigns during his term, resulting in a lower number of members of the board of directors than the quorum, the original director shall still perform his duties as a director in accordance with the provisions of laws, administrative regulations, and the company's articles of association before the newly elected director takes office. According to the aforementioned provisions, if a director resigns and the number of board members is less than the quorum (3), the resignation notice of the director cannot be immediately effective upon delivery to the company. Instead, the resignation notice can only take effect when the successor director takes office and meets the minimum number of board members.

In this case, if Zhang resigns as a director, there will be a situation that restricts the resignation of directors. Therefore, his resignation notice has no effect. Before Company A completes the appointment of a new director, he should still perform his duties as a director in accordance with the law and regulations; During this period, Zhang still had a non compete obligation. Therefore, Zhang, as the general manager of Company B, which has similar business with Company A, violated the non compete obligation and should bear corresponding legal responsibilities in accordance with the law.