How To Legally Dismiss DirectorsIn Private Companies

Here is a legal explanation of how a director in a private company can be removed or dismissed from his position.

In a company, the role of a director is one of the key factors that can determine the fate of the company in the future. The leadership and dedication of a director are one of the recipes for the overall development that cannot be ignored.

The same thing applies in the limited company. The director in the private or limited company has a vital role in developing and carrying out the company’s operation. Usually, directors are divided into several special positions such as marketing directors, warehousing directors, sales directors, or finance directors.

Each director in those positions has special authorities and different duties. However, all of the directors are in equal positions with each other. Therefore, the question begins to arise; is it possible to get rid of a director with his equity shared by other directors?

Understanding The Law Concerning This Issue

First of all, it is very important to understand that there are two types of functional positions in a company that has specific legal rules regarding the dismissal of the individual concerned.

The first is the director. A director does not have a boss or supervisor other than shareholders. Therefore the director can only be dismissed through voting by the shareholders at the General Meeting of Shareholders (in Indonesia this meeting is known as RUPS.

The provisions regarding procedures and stages of removal of a director through RUPS have been fully regulated through law. This rule also concerns the right to defend the position and the company's right to temporarily terminate a director for 30 days (maximum) before giving the final decision.

The second position is the shareholder. A shareholder cannot be dismissed from its position unless the shareholder is proven guilty to crime, violated company’s rule, or violated legal agreement toward the other shareholders. The troubled shareholder can be “forced” to sell his equity to the other shareholders or other parties.

The shareholders cannot be removed through RUPS because he also has voting rights at the meeting. This certainly creates contradictions. However, a member of the Board of Directors may be temporarily dismissed by the Board of Commissioners as long as the reasons are stated clearly. This regulation is in accordance with the rules stated in article 106 of the limited liability company law (UUPT).

Final Answer

Finally, form the facts above it can be concluded that a director can be removed from his position by voting him out during the General Meeting of Shareholders. However, the dismissal is not erased the equity he owns. As long as the individual is not violated any rules or law to retain the shares, he cannot be removed as a shareholder arbitrarily.

In fact, in cases like this, a director who is also a shareholder will usually be "forced" to sell his shares before or after being removed from his position to avoid any legal problems in the future. However, in the end, he decides to retain or sell his shares. 

Knowing Another Option

Another option to solve this issue is reinvesting the company's current gains and offer a buyback through that money or any personal capital via a secondary stake sale. After all, offering him a generous return on his investment should solve the problem smoothly.