Not Just Employment: Why Directors Need a Proper Service Agreement

When an individual accepts a directorship, they’re not simply taking on another position—,they’re assuming significant responsibilities, statutory duties, and enduring obligations that extend far beyond typical employment. This is precisely why a Director’s Service Agreement (DSA) is absolutely essential for any well-governed company.

Understanding Director’s Service Agreements

A Director’s Service Agreement is a comprehensive legal document that clearly defines the full scope of a director’s responsibilities, encompassing both their executive functions and their statutory directorial duties.

Unlike standard employment contracts, a DSA addresses the unique dual nature of directorship, —recognising that directors serve both as employees of the company and as fiduciaries with legal obligations to shareholders, creditors, and stakeholders.

How Director’s Service Agreements Differ from Standard Employment Contracts

Whilst typical employment contracts focus on fundamental terms such as working hours, remuneration, and annual leave entitlements, Director’s Service Agreements encompass significantly broader considerations:

Fiduciary responsibilities form the cornerstone of any DSA, explicitly outlining the director’s legal duty to act in the company’s best interests at all times. These agreements also address liability provisions and indemnification arrangements, establishing clear parameters for financial and legal protection should disputes arise.

Confidentiality and proprietary information clauses receive particular attention, given directors’ access to sensitive commercial intelligence. Similarly, restrictive covenants and notice periods are carefully structured to protect the company’s interests whilst ensuring fair treatment of departing directors.

Remuneration structures, equity participation, and termination provisions are meticulously detailed, covering everything from performance-related bonuses to share option schemes and comprehensive exit procedures.

The Business Case for Director’s Service Agreements

Operational clarity represents perhaps the most immediate benefit, every party understands their obligations from the outset, eliminating ambiguity and potential disputes.

Risk mitigation is equally crucial. A well-drafted DSA provides robust legal protection for the company, shareholders, and the director themselves, establishing clear boundaries and responsibilities.

Governance and accountability are significantly enhanced when directorial duties are explicitly documented, ensuring compliance with both statutory requirements and best practice standards.

Succession planning becomes considerably more straightforward when termination procedures, handover obligations, and post-employment restrictions are clearly established.

Even in smaller enterprises or family-owned businesses, formalising these arrangements through a comprehensive Director’s Service Agreement provides invaluable legal certainty and protects all stakeholders’ interests.

Professional Legal Support from Davenport Solicitors

At Davenport Solicitors, we specialise in drafting bespoke Director’s Service Agreements that are both legally robust and commercially practical. Whether you’re appointing new directors or reviewing existing arrangements, our experienced team ensures your agreements are comprehensive, compliant with current legislation, and tailored to your specific business requirements.

We understand that effective corporate governance begins with clear, well-structured agreements that protect your company whilst enabling your leadership team to operate with confidence.