Do shareholders need to approve a director's service agreement?

Under Section 188 of the Companies Act 2006, shareholders must approve (by ordinary resolution) any director's service contract with a guaranteed term exceeding two years. If the contract is terminable on notice (even a long notice period), it does not have a guaranteed term and does not require shareholder approval. If approval is not obtained where required, the term provision is void and the contract is terminable on reasonable notice.

What is a garden leave clause?

A garden leave clause allows the company to require the director to stay at home during the notice period while continuing to receive full pay and benefits. The director must remain available and must not work for anyone else. Garden leave protects the company by keeping the director away from clients, competitors and colleagues during the transition period. Time spent on garden leave typically counts towards reducing post-termination restrictive covenants.

Are post-termination restrictions enforceable for directors?

Post-termination restrictions are enforceable only if they go no further than is reasonably necessary to protect the company's legitimate business interests — such as trade connections, confidential information, and workforce stability. For directors, courts are more likely to enforce longer restriction periods (up to 12 months) and wider geographical scope than for junior employees, because directors typically have greater access to confidential information and client relationships.

Is a director an employee?

Not automatically. A director who is appointed under a service agreement (as opposed to a letter of appointment for non-executive directors) is normally both a director and an employee. This gives them both corporate law duties under the Companies Act 2006 and employment law rights under the Employment Rights Act 1996. The distinction matters for tax, unfair dismissal rights, redundancy pay, and National Insurance contributions.

What statutory duties do directors owe the company?

Sections 171-177 of the Companies Act 2006 codify seven statutory duties: act within powers (s.171), promote the success of the company (s.172), exercise independent judgement (s.173), exercise reasonable care and skill (s.174), avoid conflicts of interest (s.175), not accept benefits from third parties (s.176), and declare interest in proposed transactions (s.177). Breach of these duties can result in personal liability to the company.

Can the company require a director to resign from the board on termination?

Yes. It is standard practice to include a clause requiring the director to resign from all directorships and offices held in the company and its subsidiaries upon termination of employment. This template includes such a clause, together with an irrevocable power of attorney allowing the company secretary to sign the resignation on the director's behalf if they refuse to do so.

Free Director Service Agreement Template (UK)

A director service agreement (also called a director's contract or executive service agreement) is a contract between a company and a director who also serves as an employee.

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Employer Details

Company Name*

Registered Office Address*

Company Registration Number*

Employee Details

Director Name*

Director Home Address*

Terms

Date of Appointment*

Title / Position*

Principal Duties and Responsibilities*

Minimum Hours Per Week*

Annual Holiday Entitlement (Days)*

Notice Period*

Payment Details

Basic Annual Salary (Gross)*

Include performance bonus clause

Bonus Details (if applicable)

Include car allowance

Car Allowance Amount (per annum)

Additional Clauses

Include post-termination restrictive covenants

Include garden leave clause

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DIRECTOR'S SERVICE AGREEMENT Dated: [appointmentDate] PARTIES: (1) [companyName] (Company No. [companyNumber]), whose registered office is at [companyAddress] (the "Company"); and (2) [directorName], of [directorAddress] (the "Director"). IT IS AGREED as follows: 1. APPOINTMENT 1.1 The Company appoints the Director, and the Director agrees to serve, as [jobTitle] of the Company with effect from [appointmentDate]. 1.2 The Director's appointment is subject to the Articles of Association of the Company as amended from time to time. 1.3 The Director confirms that they are not disqualified from acting as a director under Section 159 of the Companies Act 2006 or the Company Directors Disqualification Act 1986. 1.4 This Agreement, together with the Company's Articles of Association, constitutes the written statement of employment particulars required by Section 1 of the Employment Rights Act 1996. 2. TERM 2.1 The appointment shall be for an indefinite period, subject to termination in accordance with clause 12. 2.2 In accordance with Section 188 of the Companies Act 2006, if the guaranteed term of this Agreement were to exceed two years, approval by ordinary resolution of the shareholders of the Company would be required. The parties confirm that this Agreement does not contain a guaranteed term exceeding two years. 3. DUTIES 3.1 The Director's principal duties shall be: [duties] 3.2 The Director shall devote substantially the whole of their working time, attention and abilities to the business of the Company. 3.3 The Director shall at all times comply with the statutory duties of directors set out in Sections 171 to 177 of the Companies Act 2006, including the duty to: (a) Act within their powers (Section 171); (b) Promote the success of the Company (Section 172); (c) Exercise independent judgement (Section 173); (d) Exercise reasonable care, skill and diligence (Section 174); (e) Avoid conflicts of interest (Section 175); (f) Not accept benefits from third parties (Section 176); (g) Declare any interest in proposed transactions (Section 177). 3.4 The Director shall not, without the prior written consent of the Board, hold any other directorship, office or position of profit (other than as a director of a subsidiary of the Company). 4. HOURS OF WORK 4.1 The Director shall work a minimum of [hoursPerWeek] hours per week, but shall work such additional hours as are necessary for the proper performance of their duties. 4.2 The Director agrees that the Working Time Regulations 1998 limits on weekly working time shall not apply to their employment pursuant to Regulation 20(1) (unmeasured working time). 5. REMUNERATION 5.1 The Company shall pay the Director a basic salary of [salary] per annum (gross), payable monthly in arrears by bank transfer. 5.2 Salary shall be subject to deductions for income tax and National Insurance contributions. 5.3 The Company shall review the Director's salary annually, but is under no obligation to increase it. 6. BONUS 6.1 The Director may be eligible for an annual discretionary performance bonus: [bonusDetails]. 6.2 The bonus scheme is entirely discretionary and non-contractual. Payment of a bonus in one year does not create an entitlement to a bonus in any subsequent year. 6.3 No bonus shall be payable if the Director is under notice of termination (whether given by the Company or the Director) at the date the bonus would otherwise be paid. 8. PENSION 8.1 The Company shall comply with its automatic enrolment obligations under the Pensions Act 2008. The Director may also be entitled to participate in the Company's executive pension scheme, details of which are available from the Company Secretary. 9. HOLIDAY 9.1 The Director is entitled to [holidayEntitlement] days' paid annual leave per holiday year. 9.2 Unused holiday may not be carried forward without the approval of the Board. 10. EXPENSES 10.1 The Company shall reimburse the Director for all reasonable expenses properly incurred in the performance of their duties, subject to the Company's expenses policy and the production of receipts or other evidence of expenditure. 11. CONFIDENTIALITY 11.1 The Director shall not, during their appointment or at any time after its termination, disclose to any person or use for their own benefit any confidential information relating to the Company, including (without limitation) trade secrets, financial information, client or customer lists, business plans, pricing information, product development plans, and proprietary technology. 11.2 This obligation shall not apply to information in the public domain (through no fault of the Director) or disclosure required by law or regulatory obligation. 11.3 Upon termination, the Director shall immediately return all Company property, documents (including copies) and information in their possession or control. 12. TERMINATION 12.1 Either party may terminate this Agreement by giving 6-months written notice to the other party. 12.2 The Company may terminate this Agreement without notice (summary dismissal) if the Director: (a) Commits a serious breach of this Agreement; (b) Is guilty of gross misconduct; (c) Is convicted of a criminal offence (other than a minor road traffic offence); (d) Is disqualified from acting as a director; (e) Becomes bankrupt or enters into an individual voluntary arrangement. 12.3 The Company may pay the Director in lieu of all or part of the notice period. 12.4 GARDEN LEAVE: During all or part of the notice period, the Company may, at its discretion, require the Director to remain at home and not attend the Company's premises or contact clients, customers, suppliers or employees. During garden leave, the Director shall continue to receive their full salary and benefits and shall remain bound by the terms of this Agreement. The Director shall remain available to the Company during normal working hours and shall not work for any other person or business without the Company's written consent. 12.5 Upon termination (howsoever arising), the Director shall resign from all directorships and offices held in the Company and any subsidiary, and shall execute all documents necessary to give effect to such resignations. The Director irrevocably appoints the Company Secretary as their attorney to sign such documents on their behalf if necessary. 12.6 A copy of this Agreement shall be kept available for inspection at the Company's registered office in accordance with Section 228 of the Companies Act 2006. 13. POST-TERMINATION RESTRICTIONS 13.1 Non-Competition: For a period of 12 months following the termination of this Agreement, the Director shall not, directly or indirectly, be engaged in or carry on any business that is in competition with any business carried on by the Company or any Group Company at the date of termination. 13.2 Non-Solicitation: For a period of 12 months following termination, the Director shall not solicit or entice away, or attempt to solicit or entice away, any client, customer, supplier or employee of the Company with whom the Director had material dealings during the 12 months preceding termination. 13.3 Non-Dealing: For a period of 12 months following termination, the Director shall not deal with any client or customer of the Company with whom the Director had material dealings during the 12 months preceding termination. 13.4 Non-Poaching: For a period of 12 months following termination, the Director shall not offer employment to, or employ, any senior employee of the Company. 13.5 Each restriction is a separate and independent obligation. The Director acknowledges that the restrictions are reasonable and necessary to protect the Company's legitimate business interests, including its trade connections, confidential information and the stability of its workforce. 13.6 If any restriction is held to be void or unenforceable, the remaining restrictions shall continue in full force and effect. Any period of garden leave served shall count towards and reduce the duration of these restrictions. 14. INTELLECTUAL PROPERTY 14.1 All intellectual property rights created by the Director in the course of their duties shall belong to the Company. The Director assigns (by way of present assignment of future rights) all such rights to the Company with full title guarantee. 15. DATA PROTECTION 15.1 The Company shall process the Director's personal data in accordance with the UK GDPR and the Data Protection Act 2018. 16. GENERAL 16.1 This Agreement constitutes the entire agreement between the parties and supersedes all previous agreements. 16.2 No variation of this Agreement shall be effective unless made in writing and signed by both parties. 16.3 This Agreement shall be governed by the laws of England and Wales. SIGNED by or on behalf of the Company: ___________________________ For and on behalf of [companyName] Date: SIGNED by the Director: ___________________________ [directorName] Date:

Important Notes

Legal Disclaimer

Director service agreements must comply with the Companies Act 2006. Section 188 requires shareholder approval (ordinary resolution) for any guaranteed term exceeding two years — without such approval, the term is void and the contract is terminable on reasonable notice. Section 228 requires the company to keep a copy of the service contract (or a written memorandum of its terms) available for inspection at the registered office or SAIL. Sections 171-177 set out the statutory duties of directors. Section 175 (conflicts of interest) requires directors to avoid situations where they have a direct or indirect interest that conflicts with the Company's interests. The Company Directors Disqualification Act 1986 sets out grounds for disqualification. Post-termination restrictive covenants must be reasonable (Tillman v Egon Zehnder Ltd [2019] UKSC 32). Garden leave clauses reduce the enforceability period of post-termination restrictions (see William Hill Organisation Ltd v Tucker [1999]). The Working Time Regulations 1998 Regulation 20(1) exempts workers whose working time is not measured or predetermined (applicable to many directors).

This template is provided for informational purposes only and does not constitute legal advice. For complex legal matters, we recommend consulting a qualified solicitor.

Frequently Asked Questions

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