Director service agreements

Sun 10 December 2023

Solicitors for director service contracts

Directors may or may not be employees. If they are employees, a standard employment contract will be unlikely to adequately protect either the director or the company. This is due to the fact that directors are in a key role in a limited company, with significant power and day to day control.

A clear and well drafted director service agreement ensures clarity and mitigates risk. Our specialist lawyers provide experienced and cost effective advice and draft or review directors service contracts for businesses of all types, sizes and sectors and industries. Please do get in contact by phone or email to discuss how we can help you.

Key matters to consider and potentially include in a Director Service Agreement

Term and Termination - Clearly define the duration of the agreement and the grounds for termination, including both voluntary resignation and termination by the company. Grounds can range from breach of duties, illness, criminal activity, bringing the company into disrepute or director bankruptcy.
Specific termination clauses where the director is also a shareholder – it’s very common for directors to also be shareholders. Including clear and comprehensive good leaver and bad leaver clauses (which may include share options which have not yet vested as well as shares already owned by the director) is an important and highly practical way for the company to protect it’s interests and minimise the chances of unsatisfactory, unlawful or damaging conduct or inaction by the director.
Duties and Responsibilities – set out clearly the specific work duties and responsibilities of the director together with specific duties over and above general duties of directors set out in the Companies Acts. If the director is not also a shareholder, restrictions and limits on powers may also be important to include in the directors service agreement.
Remuneration and Benefits - Specify the director's salary, bonuses, other forms of compensation, and any applicable benefits, such as pensions or health insurance. Other benefits a director may push for include being indemnified under a Director and Officers insurance policy (D & O policy)
Confidentiality and Non-Competition – Key to protect the company's proprietary information and prevent the director from engaging in competing activities both during the time he/she is a director and for a period afterwards. These clauses always need to be carefully considered, proportionate and well thought through, as otherwise they may not be enforceable.
Restrictive Covenants - Include restrictive covenants to prevent the director from soliciting the company's customers or employees upon termination.
Intellectual Property -clarifying the position on ownership and usage rights of any intellectual property which the director may have been involved in creating during their tenure.
Conflicts of Interest – a clear policy and expectations on what constitutes a conflict of interest so that any outside interests do not conflict with their duties to the company.