Directors' Service AgreementsDirectors’ Service Agreements

Directors’ Service Agreements set out your obligations and responsibilities as well as your rights as an officer of a limited company. They cover the usual employment provisions as well as:

  • Recognising that directors will see important commercial information and imposing further responsibilities on them to prevent any potential conflict of interest.
  • Setting out the directors’ obligations under the Companies Act 2006 and making sure that they’re aware of and comply with them.

Circumstances can change quickly in technology businesses

John was taken on as a trainee web designer aged 21, straight from university. The pay wasn’t great and his terms and conditions amounted to little more than a basic although legally compliant Section 1 statement.

But he applied himself.  He worked hard for the next five years showing great talent and commitment. More importantly, clients loved him and they kept coming back.  After a while, he got tired of lining others’ pockets and resigned with the intention of becoming a manager in a much larger, and much better paying competitor.

Afraid of losing him, the company offered John a directorship, a tripled salary and the opportunity to work exclusively on the type of projects that interest him.  He would also be recorded at Companies House as a director but the company didn’t issue a Director’s Service Agreement.

What would happen if:

  • John proved to be a liability, if he failed to perform (adequately or at all) his obligations as a director?
  • he walked into another role with a supply of clients and tons of commercially sensitive information?
  • John stood down as a director but stayed on as an employee?
  • there was a personal conflict within the company and John was forced out? What about his rights?

You can see the dangers of not having the right paperwork in place. Good governance and the requirement to treat people properly demand that processes be in place to ensure that things go smoothly.

In Summary

Make sure you have the right paperwork in place to ensure that if, heaven forbid, there were a problem, you’ll be able to sail through it and emerge on the other side all the better for it.

To get your Directors’ Service Agreements right to protect the interests of you and your colleagues, call 01904 899794 to get started.