SA Can a Director hire and fire?

[GrumpyNoMore]

In a small pty ltd company the majority shareholder was the CEO. The company was going through some financial and legal turmoil. The other two directors prevailed upon him to terminate an unproductive employee on the grounds that they could no longer afford the salary. The employee was given notice.

Conditions deteriorated and the CEO was also taken off the payroll but is still a Director and still holds the majority of shares. So, though a Director and majority shareholder, he is now no longer an employee and is not the CEO. He expresses a preference to withdraw the notice of termination and reinstate the employee he recently sacked. Does he now have the authority to do that, or can the other Directors prevent him from doing it?

 

[Rob Legat - SBPL]

CEO, in itself, means nothing in the legal framework. It's not a necessary position under the Corporations Act. All companies must have directors and members (shareholders). Proprietary companies ("Pty Ltd") do not even need to have a company secretary. A CEO is an appointee of the board of directors, whose authority is granted to them - so the directors hold more power than the CEO. Where it gets confusing is that the CEO is also the majority shareholder.

While the directors control the company, the shareholders control the directors. But the shareholders do not control the day to operations of the company. You can think of it similar to government, in an overly simplified sense. The public are the shareholders who vote for the MPs (who are the directors), and the Prime Minister is the CEO. The Prime Minister is not a recognised position under the Constitution; they're just the person who the MPs consider their leader in running the country.

What's the point of all this? That the person is no longer CEO is largely irrelevant. That he is the ;majority shareholder is somewhat relevant, but not directly. It's his role as a director that directly matters. While he can hire and fire, generally, if the board make a decision as a whole he is bound to abide by it. He can't unilaterally make a decision to go against the board's decision.

What he could do, subject to the terms of any agreement between the shareholders, is use his majority shareholding to force a change in the structure of the board of directors. That becomes a little more dire, and can have the propensity to 'kill' small companies due to it creating a lack of trust between the relevant parties (directors and shareholders are usually closely related).

 

[harryluther]

Can it be possible?