Q: What are Directors Service Agreements?
A: Directors Service Agreements are a form of employment contract, but they are tailored to the specialised nature of the role of a director and the more onerous duties they owe to the company compared to an employee. They cover the way in which the director will serve the company and pay close attention to the way in which the director’s relationship with the company is governed by legislation, in particular the Companies Act.
Q: Why is a Directors Service Agreement different to an Employment Contract?
A: In addition to the basic terms and conditions of employment that must be provided to an employee, the Companies Act 2006 places specific duties on directors. It is essential that these are included in the contract governing the relationship between a company and their director and Directors Service Agreements are the appropriate vehicle to use to ensure that this is done.
There is even more regulation for directors of listed companies and the more onerous obligations will have to be included in the agreement too. As well as being an incentive tool, Directors Service Agreements are also a means of corporate governance.
Q: What sorts of things are covered in a Directors Service Agreement?
A: There are a number of issues which you should consider when preparing a Directors Service Agreement, including:
- Remuneration package – including shares and share options
- Length of notice period
- Garden leave clauses
- Restrictive covenants
- Compensation on termination
Q: What is the cost of preparation of a Directors Service Agreement?
A: The cost will be in the region of £650-850 plus vat depending on the complexity.