A director has certain rights and obligations arising as an employee as well as a director of a company and it’s wise to have these specified in a Directors Service Agreement.
Most businesses, large or small employ key people to act as directors. Executive directors have significant powers and responsibility for numerous aspects of running the business, including their most valuable and often confidential information. It is for this reason that it is essential that a director’s rights and duties are correctly specified and agreed in a contract.
Employment contracts for executive directors are commonly known as service contracts or service agreements. Our team of experienced solicitors and are on hand to provide clear and practical advice regarding any aspect of these service agreements.
We can draft an agreement bespoke to your specific requirements and highlight the implications of important aspects and negotiate the terms of a service contract with the other party on your behalf.
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What’s A Director’s Service Agreement?
Directors are firstly (although not always) an employee of the business, secondly, they may also be shareholders and thirdly their office as a director should be considered separately. As such, they are entitled to have a written contract of employment, just like other team members.
As well as including the basics you would expect in an employment contract, a director’s service agreement is more detailed and extensive, given their specialist role and key obligations.
Even if a director is not a company employee, but is, for example, a non-executive director, they will still need a director’s service agreement to cover their non-executive duties.
Without any clear documentation setting out how such situations will be dealt with, it can be very difficult to separate these roles in the event that the relationship between the director and the business breaks down.
A director’s service agreement is a vital document as it sets out various rights and obligations that arise as a result of appointing a director. While having such an agreement is not a legal requirement, it creates certainty for the director and the company, allowing both parties to be protected in situations of dispute or disagreements.
Directors are depended on for the business to function and often also have access to confidential information such as financial circumstances, customer queries and employee issues.
In the absence of clear documentation setting out how such situations will be dealt with, it can be very difficult to separate these different roles if the relationship between the director and the business, or between two directors, breaks down.
Why is a Director’s Service Agreement Important?
Having this agreement enables the company to set its own rules regarding what should happen in the event of a dispute. In the absence of an agreement, it may be difficult to remove the director from the business as quickly and as easily as the business would like. This can cause a great amount of time and resources being used in an attempt to resolve the disputes.
Having a director’s service agreement allows the director to ensure that he/she is sufficiently remunerated should something go wrong and the director is pushed out of the business by the other business partners. The agreement can serve both the company and the directors, so everyone benefits from having one.
- Encourages investment
External investors would want to see the director’s service agreement as part of their due diligence. The agreement would serve as an example of how the business is well organised and show how steps have been taken to ensure that the business is prepared for contingency situations.
- Restrictive Covenants
Restrictive covenants can be included in the agreement to restrict the former director’s actions after they leave the business. These will enable the business to protect itself against unfair competition and give it an opportunity to safeguard relationships with key customers, business contacts, and employees.
Why Choose us?
We can assist you to protect your business by producing bespoke director’s service agreements. We will work with you to understand the unique issues affecting your business and to ascertain the protections you will need to include within the agreements.
Contact our Business Solicitors
The right solicitor changes everything. Anglo Law Solicitors provides expert legal advice on Director’s Service Contracts or Agreements.
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