NeatHouse Partners
Directors' Services Agreement
Our team of lawyers are experienced in drafting Directors' Service Agreements for all types of industries and business sizes
- Expertise in contractual arrangements for Directors
- Fixed-fees for certainty of cost
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Do you need a Directors' Service Agreement?
Directors’ services agreements are analogous to employment contracts: they set out directors’ roles, responsibilities and obligations, both statutory and company-specific.
Directors’ service agreements are essential because they regulate the Company’s relationship with the directors that have day to day responsibility and control. Even if a firm has no employees, it should still have directors’ services agreements in place for the protection of all parties.
What might a Director's Service Agreement cover?
Directors’ service agreements typically cover three main areas:
- Contractual arrangements for directors (i.e. their terms of employment, pay, hours of work etc)
- Duties the director must perform in their company role (i.e. the statutory “fiduciary duties” owed to the company)
- Any entitlement to bonus, shares or other benefits
Contractual Arrangements For Directors
Contractual arrangements for directors typically include their job title, salary, pension, benefits and hours they must work.
Director’s service agreements should also cover the director’s unique roles and powers. For instance, directors may have the ability to enter into contracts with other firms, employees, and contractors. Documents can include limits on directors’ power, too.
Duties The Director Must Perform
Under the Companies Act 2006, directors have certain duties towards the companies they form. These are known as “fiduciary duties”. Directors’ service contracts should refer to these duties, a breach of which may amount to grounds for dismissal.
The legislation says that directors must:
- Declare all interests in proposed transactions and arrangements
- Avoid conflicts of interests
- Promote the success of the company
- Exercise reasonable care, skills and diligence in their role
- Exercise independent judgement
- Act within their powers
Why Do Businesses Require Director’s Service Agreements?
Directors’ service agreements are essential for several reasons:
- Compliance. The Companies Act 2006 requires companies to place responsibilities on directors that relate to the work they do. Firms need to craft company and industry-specific documents that reflect this.
- Corporate governance. Directors’ service agreements serve as a backstop for effective corporate governance. By setting out what you expect of directors, you ensure that the firm develops in a way that benefits all stakeholders.
- Protection of sensitive commercial information. Directors’ service agreements also protect firms from loss of intellectual property or brand secrets. Confidentiality clauses prevent directors from divulging information to third parties.
- Clear exit strategy. Company relationships do not always proceed amicably. On occasion, directors can leave on sour terms. It is important to have appropriate notice provisions that reflect the seniority and likely timescales for recruiting replacements.
- Restrictive covenants. Restrictive covenants are aimed at preventing directors from causing harm after they leave, for example if they leave your firm and take commercially sensitive information to a direct rival. If violated, these clauses let you take legal action against the departing director.
Get Assistance Drafting Directors’ Service Agreements
Our team of experienced lawyers can assist in all parts of directors’ service agreement preparation.
Our team ensures that documents serve your business interests and cover all legal and operational requirements.
