Director Service Agreement

What is a director service agreement?

A director service agreement is the contract between the company and the director that sets out the terms on which the director serves as a director of a company, including their role, remuneration, duration, termination rights, and post-termination restrictions.

By virtue of Section 227 of the Companies Act (CA) 2006, a director can be engaged by the company based on a “service contract”, which includes the following:

• a contract of employment;
• a contract for services; and
• a letter of appointment as director.

This template is specifically designed for the appointment of the company’s director based on the contract for services. If you are looking to establish employment relations with a director, a separate employment contract template should be used instead.

Employment Contract vs. Services Contract — which is right for a UK limited company?

This is one of the most consequential decisions a company makes when appointing a director. The selected type of document will have different tax implications, rights and duties, and procedures for the termination of relations.

An employment contract can be a more suitable option when the company is willing to engage a director for the long term and to prevent him/her from working simultaneously for other companies. On the other hand, a contract for services is more tax efficient for the company as well as preserves the independent contractual status of both parties involved.

Why does having a professional director service agreement matter?

A director’s duties in a UK limited company have two layers:

• statutory level – director’s duties are defined in Sections 171-177 of the CA 2006; and
• contractual level – private clauses dealing with payment, duration, trips abroad, additional incentives and bonuses, etc.

A properly drafted agreement should acknowledge both layers of duties. Besides that, having a written agreement is necessary:

• For due diligence procedure. If the company goes public, is listed or is being sold, having written contractual arrangements for directors is required under the UK Corporate Governance Code (2024).
• To avoid disputes. Once the document is terminated, parties may have a dispute regarding the post-termination rights as well as notice periods.
• For IP protection. Disputes over created IP rights in the course of directorship are common where there is no clear wording regarding who owns what in the company.
• For malus/clawback clauses. If a director is acting dishonestly or in breach of fiduciary duty, the company may immediately stop the directorship. However, a written agreement allows imposing a mechanism for reducing or recovering bonuses or incentives paid to the director before (Provisions 37-38 of the UK Corporate Governance Code 2024).

Important compliance requirements governing the appointment of the director in a UK limited company

Depending on the type of company, parties involved in the appointment of a new director under the director service contract should be aware of the following important compliance requirements:

Exclusion of liability limitation

Under the CA 2006, the director has a set of default fiduciary duties which cannot be compromised, including the following:

• the duty to promote the success of the company (Section 172);
• the duty to avoid conflicts of interest (Section 175);
• the duty to declare an interest in a proposed transaction (Section 177).

Exclusion of liability for the breach of any of these duties in the provisions of this director services contract is void by virtue of Section 232 CA 2006.

Companies House identity verification

Starting from 18 November 2025, the newly appointed directors must undergo mandatory identity verification under the Economic Crime and Corporate Transparency Act 2023. Failure to undergo such a verification is a ground for refusal of appointment even if the contract is already signed.

Disqualification of the director

Under the Company Directors Disqualification Act 1986, the law allows a director to be disqualified from serving as a director of the company for a defined period of time based on the court’s decision. Before the appointment, the company must check if there is any such ruling regarding the potential candidate.

Non-compete limitations

Whether the director provides their services directly or through the professional service company, it is worth checking if there is any ongoing non-compete agreement preventing the director from working for your company.

Charity Commission Consent

If the director is being appointed to the registered charity, in such a case, prior consent for the appointment is required from the Charity Commission.

Board Approval

Before signing the director services agreement, a separate board resolution appointing the director and approving contract terms is required. Such an approval and its procedure are being defined in the company’s Articles of Association (a director is usually restricted from voting on their own contract unless the Articles say otherwise).

Shareholder Approval

When the duration of the director service agreement is for more than 2 years, in such a case prior shareholder’s approval is mandatory before the appointment (Section 188 of the CA 2006).

Which essential clauses should every director service contract include?

A well-drafted director service contract must cover the following:

• full details of the company and director;
• appointment details such as start and end date, job title;
• termination procedure, including grounds for immediate termination of appointment, and notice period;
• If the contract is paid, details of salary, bonuses, incentives,
• IP standard waiver clause transferring full rights for created IP to the benefit of the company;
• confidentiality clause (supported by an additional signed non-disclosure agreement);
• list of statutory duties under the CA 2006, including conflicts of interest and related-party dealings, fidelity duty;
• list of contractual duties;
• additional covenants, including prior approval from shareholders, Companies House filing, etc.;
• governing law – usually the law of the jurisdiction where the company is registered (England and Wales, Scotland or Northern Ireland).

Common mistakes to avoid when drafting a director service contract

By knowing these most common mistakes, you reduce the likelihood of non-compliance with the UK legal framework significantly.

Mistake 1: Assuming duties are “created” by the contract.

The contract cannot override or contradict the statutory duties of a director defined in Sections 171–177 CA 2006. They should exist independently.

Mistake 2: Leaving director’s status ambiguous

The wording of the final document must clearly outline if this is an employment contract or services contract. Vague wording makes unclear the company’s obligations regarding whether additional employment statutory entitlements under the ERA 1996 should be granted to the director.

Mistake 3: Forgetting about non-compete limitations

Once the contract expires, the director most probably will find “another job” and, possibly, one with your competitor. To prevent this, it is better to sign a non-compete agreement for business well in advance, in addition to the present director services agreement.

Mistake 4: Forgetting about insurance

A director’s liability cannot be excluded in full, especially when it comes to the director’s statutory duties defined in the CA 2006. Therefore, valid professional insurance is always a good solution to protect against risks and liabilities.

How to use this template for the appointment of a director?

Follow the instructions below:

1. Click the “Create Document” button to open the questionnaire.
2. Answer simple questions in the form.
3. Select a template’s format – PDF or Word.
4. E-sign the document online (for the company’s representative).
5. Make a payment.
6. Download the document template in PDF or Word.
7. Print it out and check for the correctness of the inserted information.
8. Seek the board decision to approve the contract.
9. Make the director and the company’s representative sign the agreement.
10. Undergo necessary compliance checks (e.g., Companies House mandatory identification).

This description is provided for general information about the legal framework applicable to director service agreements in the UK. It is not legal advice. Company- or sector-specific circumstances (particularly regulated industries, listed companies, and cross-border appointments) may require bespoke legal review.