Changes at Director Level

For one reason or another, it may be necessary to change a head of a company (director).

The head bears an increased responsibility in comparison with ordinary employees; it includes liability for damage caused to the property of the legal entity, as well as subsidiary responsibility in case of fault in bringing the company to bankruptcy.

Obviously, a new person who holds the position of the head of the company should be able to take over duties properly in order to avoid claims that may arise from the activities of the previous director.

Please consider the main steps you should take when changing the head of the company.

1.      To dismiss the current director.

There could be different reasons for dismissal.

Non-conflict reasons include the expiration of the contract or his/her own desire to terminate the employment relationship.

On the other hand, there could be some serious violations of the labor legislation, for example, untimely payment of salaries to employees without good reason.

The founders of a legal entity or the owner of a property of a unitary enterprise (UE) can also initiate the termination of the current director.

If the decision to dismiss the current director was made by the owner of the property of the unitary enterprise or by founders of the company, then such a decision should be processed appropriately. If it is a unitary enterprise, it is made by the decision of the owner of the property, and if it is a company - by the record of the general meeting of participants (shareholders) of the company.

The decision on the dismissal of the head may reflect such moments as:

- the appointment of a new leader and the conclusion of an employment contract (agreement) with him/her;

- the terms and procedure for the transfer of all duties and documents;

- the timing of the inventory.

2.      To make a decision to hire a new director.

Actually, the process of issuing a decision depends on the legal form of the company.

In unitary enterprises, the decision to hire a new director is made by the property owner.

In legal entities, the procedure for making such decisions is different. Due to the fact, that such decisions should be made collectively.

So, in case of legal entity, the decision to hire a new director should be made at the general meeting of participants (shareholders) and included to the record.

In case of a unitary enterprise, the decision is drawn up in a form of a separate document, or in a form of a concluded employment agreement (contract) with a new director.

An employment contract and other personnel documents (for example, an employment order) can be signed either on behalf of the company by the owner of the property of the unitary enterprise or, in case of legal entities, the chairman of the general meeting of participants (shareholders) authorized by the decision of such a meeting.

After the conclusion of an employment agreement (contract) with the new leader, it is necessary to issue an employment order. The new leader signs an employment order in relation to oneself. It is necessary to make an appropriate record in a work record book, and to draw up such personnel documents as a personal data file, personal military registration card, as well as to notify the relevant authorities about the hiring (regional draft board, The Social Protection Fund).

3. To organize the transfer of all duties and documents.

Usually, the head of the company keeps constituent documents, a certificate of registration, records of general meetings of participants.

If the company is small and does not have its own personnel (accounting) service or specialized departments, then the head can also keep the company's seal, special permits (licenses) for the right to engage in certain activities, strict accountability forms, personnel documents, etc.

In order to transfer documents properly, it is necessary to draw up the Statement of Acceptance of Works.

Taking into account that both persons (the new and the previous director) cannot occupy this position at the same time, the current director must transfer documents to the company representative - an authorized person in case of a legal entity or the owner of property in case of a unitary enterprise.

4. To plan and to conduct an inventory.

This procedure is carried out before the dismissal of the head. An inventory is not mandatory, but it helps to identify a shortage of property that could happen during the work of the previous head of the company.

Usually, a special committee is created to conduct an inventory. It may include an accountant, economist, lawyer, and warehouse manager.

The presence of the head during the inventory is mandatory.

5. To notify of a director change.

The change of a director is an important and responsible step, which entails the need to notify a number of third parties about this fact.

First of all, within 10 days from the date of an appointment of a new director, the executive committee shall be notified of this.

Then you should notify the company’s servicing bank, and issue a new card with samples of signatures and stamps at the bank within a month.

If the current agreements provide for the obligation to notify the counterparty of a change in the head of the company, the notifications should be sent to such counterparties.

It is also recommended to notify all other counterparties about such an event so as not to waste time on re-issuing the documentation received from them.