Creating a bespoke director’s service agreement that ensures you have effective protection

  • Your directors have access to key information and fulfil essential roles, and if a director should leave, your business could be potentially vulnerable.
  • A director’s service agreement sets out terms which will protect your business when a director leaves, for example covering confidentiality, restrictions on working for competitors and requirements to relinquish their other duties.
  • We can draft a bespoke, comprehensive director’s service agreement that covers all the aspects you want, to ensure your business is properly protected and provide clarity for both you and the director.

To fulfil their role in managing and growing your business, your directors need access to key information such as your finances, employees and current and prospective customers. As well as being employees themselves, they may also be shareholders and, as directors, they have a separate set of responsibilities.

Why do you need a service agreement?

If there is a dispute with a director or they decide to leave, your business could be very exposed. As an employee, shareholder and director, the individual effectively has three separate roles, and although they may leave one role, they could still continue in the other two. This has the potential to cause significant disruption and damage, for example if they decide they won’t fulfil their statutory duties as a director or start generating unrest amongst the shareholders.

Having a director’s service agreement in place could prevent this disruption, by requiring a director to relinquish all their roles on leaving the company. The service agreement should cover other key aspects, such as including a restrictive covenant to protect your confidential information and stop the departing director going straight to one of your competitors.

The importance of a bespoke agreement

We can help provide the protection you need, by drafting a bespoke director’s service agreement. This document will cover the director’s specific position and relationship with your business, and include clauses covering the notice period you want to set, whether the director has an executive or non-executive role, whether your business will provide indemnity for the director against certain personal liabilities, and so on.

Although you may find templates for director service agreements online, they are no substitute for a properly drafted document that covers all the variables and individual clauses, such as those mentioned above, that you want to include. A low-cost online template can turn out to be a false economy, if you subsequently find it has a crucial omission which leaves you with expensive consequences following a director dispute.

Our specialist employment team has a wealth of knowledge in drafting and reviewing director’s service agreements. We will take the time to discuss the terms of the agreement with you and ensure it is tailored to your business and contains all the detail you want.

Once an agreement has been correctly drafted, it is important it is maintained and kept up to date with any changes in your business arrangements, the director’s circumstances or new legislation. We will be happy to provide a quote for a one-off or regular review, giving you the peace of mind that your agreements are continuing to provide the protection you need and remain legally compliant.

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