Service Agreements for Directors

A director service agreement is often one of the most important contracts a company enters into. Directors are usually central to the management, strategy, client relationships and growth of a business, meaning that standard employment contracts are rarely sufficient. A well drafted agreement helps protect both the company and the director, whilst also reducing the risk of disputes, uncertainty and operational disruption later on.

We advise companies, shareholders and directors on director service agreements across a wide range of owner managed and growing businesses. This includes executive and non-executive directors, founder directors, shareholder-directors and directors joining businesses following investment, acquisition or restructuring.

Our work includes drafting, reviewing and negotiating director service agreements, advising on amendments to existing arrangements and dealing with related issues such as share incentives, restrictive covenants, confidentiality obligations and exit provisions.

Who We Act For

We act for:

• Owner managed businesses

• SMEs and growing companies

• Founders and entrepreneur-led businesses

• Individual directors

• Non-executive directors

• Shareholders

• Senior management teams

• Investors and investment-backed businesses

How We Help

We provide practical and commercially focused advice on director service agreements including:

• Drafting bespoke director service agreements tailored to the business, sector and seniority of the director.

• Reviewing existing agreements to identify legal and commercial risks, unclear provisions or inadequate protections.

• Negotiating key terms for companies or directors including remuneration packages, bonuses, share options and incentive arrangements.

• Advising on restrictive covenants, confidentiality obligations and protection of business relationships and intellectual property.

• Advising on the interaction between director service agreements, shareholder agreements and articles of association.

• Assisting where a director is joining, exiting or changing role within the business.

• Advising on termination provisions, notice periods, garden leave and good leaver / bad leaver clauses.

• Helping businesses ensure agreements are consistent with wider corporate governance and regulatory obligations.

Key Matters Commonly Covered in Director Service Agreements

• Duties and Responsibilities - A director service agreement should clearly define the director’s role, responsibilities and reporting obligations. This often extends beyond the general legal duties imposed on directors under company law and can include operational, financial or strategic responsibilities specific to the business. Clearly documenting expectations can reduce the risk of misunderstandings, management disputes and disagreements over performance.

• Remuneration and Incentives - Director remuneration structures are often more complex than standard employment arrangements. Agreements may include salary, bonuses, commission, pension contributions, private medical cover, share options or other incentive arrangements.For shareholder-directors and senior management, it is often important that remuneration arrangements align with shareholder agreements, investment arrangements and longer-term business objectives.

• Restrictive Covenants and Confidentiality - Directors commonly have access to highly sensitive commercial information, client relationships and strategic plans. Well drafted restrictive covenants and confidentiality provisions can therefore be particularly important. These clauses need careful drafting. Restrictions that are too wide or unreasonable may be difficult to enforce, whilst inadequate protections may expose the business to significant risk if a director leaves.

• Intellectual Property - Where directors are involved in developing products, systems, branding, software, processes or business materials, it is important to clearly address ownership of intellectual property created during their appointment. This can become particularly important in founder-led businesses, technology companies and businesses preparing for investment or sale.

• Termination and Exit Provisions - Director exits can become legally and commercially sensitive, particularly where the director is also a shareholder or key individual within the business.Agreements commonly address notice periods, resignation, dismissal, garden leave, post-termination obligations and circumstances where a director may be treated as a good leaver or bad leaver. It is often important to ensure these provisions work alongside the company’s articles of association and any shareholder agreement.

• Conflicts of Interest - Director service agreements often include obligations relating to conflicts of interest, outside business activities and disclosure requirements. This can be particularly important where directors hold multiple business interests, sit on several boards or operate within overlapping sectors.

Director Service Agreements and Shareholder Issues

In many owner managed businesses, directors are also shareholders. In these situations, the service agreement should usually be considered alongside:

• Shareholder agreements

• Articles of association

• Share option or EMI arrangements

• Investment agreements

Contact Us

If you would like advice on drafting, reviewing or negotiating a director service agreement, please contact our corporate and commercial team.

The right agreement can help protect the business, provide clarity for directors and reduce the risk of disputes as the company grows.