A Step-by-Step Guide to Drafting Directors Agreements (UK)

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Drafting a directors agreement is an essential step for any company seeking to protect their directors and shareholders from potential legal issues. It is a legally binding document which outlines the rights and obligations of a director, as well as setting out the terms of their appointment. It should be tailored to fit the specific needs of the company, its directors and shareholders, while being regularly reviewed to ensure it continues to meet these needs.

It is important that this agreement includes provisions relating to remuneration and benefits, as well as termination clauses that ensure the company can remove an underperforming director or make changes if needed. Provisions should also be included which protect both the company and its directors in terms of liability - ensuring no individual will be held responsible for losses or damages resulting from their behaviour while acting in their role.

At Genie AI, we understand just how important it is for companies and individuals alike to have clear guidance on drafting directors agreements. Our team provides free templates for our community template library which are informed by millions of data points around what makes up a market-standard directors agreement. Using this guide does not require you having a Genie AI account either - we just want you to receive reliable advice on protecting yourself!
So if you’re looking for step-by-step guidance on how to draft effective directors agreements that meet your particular legal requirements, why not access our template library today?

Definitions

Director: A person appointed to manage a company’s affairs, either on a full-time or part-time basis.
Duty of Care: The requirement to exercise reasonable care and skill in the performance of one’s duties.
Duty of Loyalty: The requirement to always act in the best interests of the company, and not use one’s position to gain an improper advantage.
Duty of Disclosure: The requirement to disclose any material information to the company’s shareholders and other relevant parties.
Duty to Act in the Best Interest of the Company: The requirement to act in the best interest of the company at all times, making decisions that are in the best interests of the company, and not one’s own.
Non-Compete Clause: A clause in a contract that prevents a director from working for a competitor after their employment ends.
Confidentiality Clause: A clause in a contract that prohibits a director from disclosing any confidential information to outside parties.
Compensation Clause: A clause in a contract that outlines the director’s compensation package.
Termination Clause: A clause in a contract that outlines the conditions under which the director’s employment may be terminated.
Legal Liability: The potential responsibility of a party for any errors or omissions they make while managing the company.
Breach of Contract: When a party to a contract fails to fulfill the obligations stated in the agreement.
Legal Remedies: The legal measures taken by a party to address a breach of contract.

Contents

1. Introduction to the legal obligations of a director
2. Definition of a director
3. Overview of duties and responsibilities
4. The duties and responsibilities of a director
5. Duty of care
6. Duty of loyalty
7. Duty of disclosure
8. Duty to act in the best interest of the company
9. The different types of directors’ agreements and when they should be used
10. Employment agreements
11. Independent contractor agreements
12. Shareholder agreements
13. Consulting agreements
14. An outline of the terms and conditions that should be included in a director’s agreement
15. Non-compete clause
16. Confidentiality clause
17. Compensation clause
18. Termination clause
19. How to negotiate a director’s agreement
20. Research
21. Drafting an initial agreement
22. Negotiating terms
23. Reviewing and revising the agreement
24. The legal implications of a director’s agreement
25. Potential legal liability for directors
26. Breach of contract
27. Legal remedies for breach of contract
28. The importance of having a written agreement
29. Clarifying roles and expectations
30. Defining financial and ownership arrangements
31. Protecting confidential information
32. Avoiding potential legal disputes
33. The benefits of having a well-drafted directors agreement
34. Ensuring compliance with legal requirements
35. Setting expectations of directors and other parties
36. Establishing clear roles and responsibilities
37. Clarifying compensation and ownership arrangements
38. Steps to ensure the agreement is effective
39. Ensuring the agreement is properly authorized
40. Acting in accordance with the agreement
41. Ensuring the agreement is up to date
42. Keeping records of the agreement
43. Summary and conclusion
44. Summary of the legal obligations of directors
45. Overview of the importance of a well-drafted director’s agreement
46. Summary of steps to ensure the agreement is effective
47. Summary of the potential benefits of having a written agreement

Get started

Introduction to the legal obligations of a director

• Understand what a director is and their duties in accordance with the Companies Act 2006
• Be aware of the fiduciary duties of a director and how these apply to the company
• Understand the statutory duties that a director must comply with
• Be aware of the potential criminal and civil liabilities for breach of duty

Once you have an understanding of the legal obligations of a director, you can move on to the next step in the guide.

Definition of a director

• Understand the meaning of the term ‘director’ in the context of a company
• Read and familiarise yourself with the Companies Act 2006 and the Companies Act 2006 (Commencement No 2) Order 2008
• Review the definition of ‘director’ as set out in section 250 of the Companies Act 2006
• Understand the distinction between executive and non-executive directors
• Make sure you understand the legal consequences of being a director of a company
• Understand the legal requirements of a director, such as fiduciary duties
• Check that the individual you are appointing as a director does not have any disqualifications from acting as a director

Once you have completed these steps, you will have a clear understanding of the definition of a director and the legal obligations that come with the role.

Overview of duties and responsibilities

• Understand the role of a director, as defined in the Companies Act 2006
• Understand the duties and responsibilities of a director, as set out in the Companies Act 2006
• Make sure the directors agreement covers all duties and responsibilities of a director
• Ensure the agreement is tailored to the specific needs of the company
• Check that the agreement complies with all applicable laws
• When you have completed the overview of duties and responsibilities, check it off your list and move on to the next step.

The duties and responsibilities of a director

• Read and consider the Companies Act 2006
• Read the memorandum and articles of association
• Identify the key duties and responsibilities of the director
• Research any legal requirements on the director’s responsibilities
• Draft a clause in the director’s agreement detailing the duties and responsibilities of the director
• Ensure that the agreement reflects the legal requirements
• Check the agreement for accuracy

Once you have completed the above steps, you can check this off your list and move on to the next step: ### Duty of care.

Duty of care

• Understand the meaning of the ‘duty of care’ and the importance of meeting it: The duty of care is the obligation of a director to show a reasonable degree of care, skill and diligence in the performance of his/her duties.
• Outline the standard of care expected of a director in the agreement: The agreement should include a clause setting out the standard of care required of a director, as well as the consequences of any breach of this duty.
• Highlight the importance of proper record keeping: The agreement should also include a clause highlighting the importance of proper record keeping and the consequences of any failure to do so.

You’ll know when you can check this off your list when you have fully outlined the standard of care expected of a director and highlighted the importance of proper record keeping in the agreement.

Duty of loyalty

• Understand the duty of loyalty and why it is important: the duty of loyalty requires directors to act in the best interest of the company and avoid conflicts of interest
• Identify any potential conflicts of interest and how they will be managed: this should include any potential conflicts between directors and the company, other related companies, and personal interests
• Draft a clause into the agreement that states that directors must act in the best interest of the company and disclose any potential conflicts of interest: this should include a clear explanation of the consequences if they fail to do so
• Make sure the agreement outlines clear procedures for dealing with any conflicts of interest: these should include a process for reporting and rectifying any conflicts

When you have completed these steps, you can check this off your list and move on to the next step (Duty of Disclosure).

Duty of disclosure

• Understand the importance of a director’s duty of disclosure: Directors must disclose any personal interests which could be seen as conflicting with their duties as a director of the company.
• Learn the details of the disclosure requirements: Directors must disclose any personal interests to the other directors in writing and take all reasonable steps to ensure that the disclosure is recorded in the company’s register of directors’ interests.
• Comprehend the consequences of not disclosing a personal interest: If a director fails to disclose a personal interest, the other directors may be able to set aside any contract or transaction entered into by the company as a result of that failure.

You will know you can check this off your list and move on to the next step when you have a full understanding of the disclosure requirements and the consequences of not disclosing a personal interest.

Duty to act in the best interest of the company

• Understand the fiduciary duty of directors to act in the best interest of the company
• Determine what the company’s best interests are
• Outline the obligations of the director to act in the best interest of the company
• Specify the consequences if the director breaches their duty to act in the best interest of the company
• Check that the agreement is in line with company law

You’ll know you can move on to the next step when you have specified the director’s fiduciary duty to act in the best interest of the company, outlined the obligations of the director, and specified the consequences if the director breaches their duty.

The different types of directors’ agreements and when they should be used

• Understand the different types of directors’ agreements available including ordinary service agreements, consultancy agreements, and executive service agreements
• Decide when each type of agreement should be used, taking into account the directors’ specific roles and responsibilities
• Consult with legal professionals to ensure that any agreements are in compliance with the Companies Act 2006
• Once you have a clear understanding of the different types of agreements and when each should be used, you can check this off your list and move on to the next step.

Employment agreements

• Draft a directors’ service contract that sets out the terms of employment for a director, including the duration of the agreement, the director’s responsibilities, the director’s remuneration and any restrictions on the director
• Determine the minimum level of legal protection that must be provided to the director as required by law
• Consider any additional matters that should be included in the agreement but are not mandatory, such as confidentiality clauses, restrictive covenants and provisions dealing with the transfer of intellectual property
• Negotiate and agree the terms of the agreement with the director, including the duration of the agreement, the director’s responsibilities and the director’s remuneration
• Ensure the directors’ service agreement is signed by both parties

You will know you can check this step off your list and move on to the next step when you have drafted a directors’ service contract, negotiated and agreed the terms of the agreement with the director, and the directors’ service agreement is signed by both parties.

Independent contractor agreements

• Gather necessary information: you will need to collect information related to the individual contractor and the job role, such as the contractor’s name, address, job title, and the start and end date of the contract
• Establish the scope of the agreement: define the job duties, roles, and responsibilities of the contractor in the agreement
• Establish the terms of the agreement: include the payment terms, any additional compensation, and any expenses that may be reimbursed
• Establish the termination terms: specify the terms for terminating or altering the agreement and the consequences of doing so
• Sign the agreement: both parties should sign the agreement and have it witnessed to make it legally binding
• How you’ll know when you can check this off your list and move on to the next step: once both parties have signed and witnessed the agreement, you will have completed this step and can move on to the next step.

Shareholder agreements

• Understand the purpose and objectives of the shareholder agreements
• Research the applicable laws and regulations in the jurisdiction where the shareholder agreements will be enforced
• Establish the terms and conditions of the shareholder agreements, including the rights and responsibilities of the shareholders
• Include provisions for voting and decision-making, non-compete and confidentiality clauses, and the transfer of shares
• Draft the shareholder agreements, taking into account all pertinent legal and financial considerations
• Have the shareholder agreements reviewed by a legal professional
• Sign and execute the shareholder agreements
• Keep a copy of the shareholder agreements and provide copies to all shareholders

You’ll know you can check this step off your list and move on to the next step once the shareholder agreements are signed and executed by all relevant parties.

Consulting agreements

• Identify and assess the legal considerations and potential risks associated with the director’s agreement.
• Draft the consulting agreement in accordance with applicable laws and regulations.
• Consider the specific circumstances of the company and the director in order to create an agreement that is tailored to the needs of both parties.
• Include provisions for the payment of the director’s fees, their duties, and the duration of the agreement.
• Include termination clauses for both parties and ensure that the director agrees to comply with the company’s policies.
• Ensure that the agreement is legally binding, and that all parties sign the document.

You will know when you have completed this step when you have drafted a consulting agreement that meets all the legal requirements and that is tailored to the needs of both parties.

An outline of the terms and conditions that should be included in a director’s agreement

• Identify the legal rights and responsibilities of the director in accordance with the Companies Act.
• Include details of the director’s role and responsibilities, including the services to be provided, any restrictions or obligations, and the duration of the agreement.
• Ensure the agreement includes details of the director’s remuneration, including salary, bonuses, and other benefits.
• Include terms and conditions relating to the director’s conduct, such as conflicts of interest and non-compete clauses.
• Detail the director’s indemnity, including the extent to which they are liable for any losses incurred.
• Provide a mechanism for resolving disputes, such as mediation or arbitration.
• Specify the circumstances in which the agreement can be terminated.

You’ll know this step is complete when you have all the necessary terms and conditions written into the director’s agreement.

Non-compete clause

• Decide whether a non-compete clause is necessary and if so, draft one.
• Consider the scope of the restriction, the length of time it should apply, the geographical area it should cover and the activities it should restrict.
• Make sure the clause is reasonable, taking into account the needs of the business and the impact on the director’s ability to earn a living.
• Review the clause with a lawyer to ensure it is legally binding and enforceable.

Once a non-compete clause has been drafted and reviewed, this step can be checked off the list and the guide can move on to the next step: ### Confidentiality clause.

Confidentiality clause

• Consider whether a confidentiality clause is necessary
• Draft the clause, including:
• What information is confidential
• Who the parties to the agreement are
• How long the confidentiality clause should last
• Check that the clause is clear and unambiguous
• Once the clause is completed and agreed by all parties, it is ready to be included in the Directors Agreement.

You can check this step off your list and move on to the next step once the clause is completed and agreed by all parties.

Compensation clause

• Determine the type and amount of compensation that the director will receive
• Express the amount in monetary terms and also as a percentage of the director’s salary
• Specify the frequency of payment, such as monthly or quarterly, and if it is subject to any increase or decrease
• Clarify whether the director is entitled to any bonuses or other forms of compensation
• Outline any reimbursement of expenses, such as travel or business-related expenses
• Ensure that the agreement covers any other forms of compensation that the director may be entitled to

When you can check this off your list and move on to the next step:
Once you have determined the type and amount of compensation that the director will receive, clarified any bonuses or other forms of compensation, and outlined any reimbursement of expenses, you can move on to the next step - drafting the termination clause.

Termination clause

• Consider both the rights of the company and the director when drafting the termination clause
• Specify the grounds for termination, such as misconduct or breaches of fiduciary duties
• Determine the notice period for termination, and whether it will be paid or unpaid
• Decide whether the director will be allowed to be terminated without cause
• Include a clause that states any unpaid amounts owed to the director must be paid within 14 days of termination
• Specify whether the director can be restricted from working for competitors after termination

Once you have completed this step, you can move on to the next step in the guide: How to Negotiate a Director’s Agreement.

How to negotiate a director’s agreement

• Identify the main terms of the proposed agreement
• Consider what the agreement should include, such as provisions for remuneration, responsibilities, and any other matters that need to be addressed
• Discuss the terms with the other party, and ensure that both parties agree to them
• Prepare a draft of the agreement, and discuss any changes that need to be made
• Make sure that the agreement reflects the agreement between the parties, and make any necessary changes
• Get the agreement signed by both parties
• Check off this step and move on to the next step of researching the relevant laws and regulations that may apply to the agreement.

Research

• Research relevant UK laws that apply to directors agreements, such as the Companies Act 2006 and the Employment Rights Act 1996
• Take the time to understand the different elements that need to be included in the agreement, such as the duties of the director, their power, and the remuneration
• Read up on relevant case law to ensure the agreement is legally binding
• Look for examples of other directors agreements to use as a template for drafting
• Once you have a good understanding of the legal considerations and have gathered some reference documents, you can move on to the next step of drafting an initial agreement.

Drafting an initial agreement

• Draft an initial agreement that outlines the role of the Director and their responsibilities in accordance with the Companies Act 2006
• Consider the contractual terms that are necessary to protect both the company and the Director
• Draft the initial agreement in accordance with the common law and the Companies Act 2006
• Take into consideration any specific requirements that the company may have
• Check that the initial agreement is in line with the company’s articles of association
• Have the initial agreement reviewed by a qualified lawyer
• Once all parties are satisfied with the initial agreement, get it signed by the Director

You’ll know you can check this off your list and move on to the next step when all parties have been satisfied with the initial agreement, and it has been signed by the Director.

Negotiating terms

• Prepare a draft agreement and negotiate it with the director and/or their representative.
• Consider the director’s role, duties, responsibilities, and the remuneration, in detail.
• Consider including in the agreement any additional terms or conditions that are agreed between the parties.
• Check that the agreement complies with the Companies Act 2006.
• Once all terms have been agreed, the agreement can be finalised and signed.
• You will know that you have completed the negotiating terms step when both parties have agreed all the terms and conditions of the agreement.

Reviewing and revising the agreement

• Carefully read through the director’s agreement and note any areas that need to be amended or clarified.
• Ensure that all parties have agreed to the terms and conditions of the contract.
• Pay particular attention to any clauses that could be deemed as unfair or unreasonable.
• Make sure that any changes to the agreement are mutually agreed and documented.
• Ensure that the agreement is updated to current legislation and regulations.
• Check that all details are accurate, up-to-date, and complete.
• Ask a professional legal advisor to review the document for accuracy and legal compliance.

You’ll know you’ve completed this step when you have reviewed and revised the agreement according to the steps outlined above and all parties have agreed to the terms of the contract.

The legal implications of a director’s agreement

• Understand the legal implications of a director’s agreement, such as the duties it imposes on the director and any restrictions on their activities
• Research any legal precedents related to directors’ agreements, such as the Companies Act 2006 and other relevant legislation
• Consider any potential liabilities for directors, such as a breach of fiduciary duty or negligence
• Understand the implications of the agreement in the context of any other agreements or arrangements that are in place
• When you have a thorough understanding of the legal implications of the agreement, you can then move on to the next step in drafting the agreement.

Potential legal liability for directors

• Understand the legal implications of being a director in the UK
• Review the Companies Act 2006 and the Corporate Insolvency Act 2020
• Consider the exposure to personal liability for directors in the case of wrongful acts
• Identify potential areas of legal liability for directors
• Consider the limits of indemnity and insurance for directors

When you can check this off your list:

• When you have a clear understanding of the legal implications of being a director in the UK
• When you have reviewed the Companies Act 2006 and the Corporate Insolvency Act 2020
• When you have identified potential areas of legal liability for directors
• When you have considered the limits of indemnity and insurance for directors

Breach of contract

• Be aware of the potential legal remedies that may be available to the company or the director in the event of a breach of the Directors Agreement.
• Review the Directors Agreement to identify any potential breaches of contract, and consider the remedies available to the company or to the director in the event of a breach.
• Consider whether the Directors Agreement should include a clause which sets out the remedies available in the event of a breach, such as damages or compensation, or an injunction to prevent further breaches.
• When you have reviewed the Directors Agreement for potential breaches and considered the remedies available, you can check this off your list and move on to the next step.

Legal remedies for breach of contract

• Research remedies available to the company in the event of a breach of contract by the director
• Investigate the availability of injunctions and damages for any breach
• Consider how best to ensure the company’s rights are protected in the event of a breach
• Draft the relevant clause in the directors agreement
• Check to make sure the clause is enforceable and tailored to the company’s particular circumstances
• Once the clause is drafted, you can move on to the next step

The importance of having a written agreement

• Understand why it is important for directors to have a written agreement in place when taking up their role as a director
• A written agreement can prevent disputes and provide clarity for each party, setting out the rights and obligations of each party
• Consider the areas to be covered in the agreement, such as the duties of directors, their remuneration, indemnification and insurance, the removal of directors, and confidentiality
• Seek legal advice if you need help with drafting a directors agreement
• Check off this step when you have a clear understanding of the importance of having a written agreement in place for directors in the UK.

Clarifying roles and expectations

• Clearly define the roles and responsibilities of each director in the agreement
• Discuss and agree on the duties of the directors, such as decision-making, monitoring the company’s activities and financial performance, and supervising the other directors
• Assign tasks to each director and ensure they are aware of their individual duties and responsibilities
• Understand the roles and expectations of each director in order to properly manage their relationship

Once you’ve clarified the roles and expectations of each director and have assigned tasks, you can check this step off your list and move on to the next step - defining financial and ownership arrangements.

Defining financial and ownership arrangements

• Outline any director’s fees and benefits in the agreement
• Detail any agreements or restrictions on the director’s shareholding or other ownership rights
• Set out any additional financial compensation or arrangements that may be agreed to
• Specify any further arrangements or restrictions on the director’s financial obligations
• Confirm any details of the director’s pension arrangements
• When all of the above points have been addressed, you can move on to the next step in the drafting process, which is protecting confidential information.

Protecting confidential information

• Ensure that both parties are aware of the confidential information of the other party
• Include clauses in the agreement that protect confidential information from disclosure or unauthorised use
• Specify what is considered to be confidential information and what is not
• Set out the obligations of each party in terms of confidentiality
• Include a clause that provides for the return of confidential information on termination of the agreement
• Include a clause that requires the parties to delete or destroy confidential information once the agreement is terminated

Once you have included the necessary clauses that protect confidential information, you can move on to the next step, which is Avoiding Potential Legal Disputes.

Avoiding potential legal disputes

• Research relevant legislation, case law and local regulations that may be applicable to the directors agreement
• Make sure that the directors agreement complies with all relevant legislation, case law, and local regulations
• Ensure the directors agreement is clear and unambiguous, and that all its terms are fully understood by the parties involved
• Make sure you are aware of the relevant contract law, and that the agreement is enforceable
• Know the consequences of any breach of contract and how to deal with them
• Make sure any dispute resolution procedure is included in the agreement
• When you are confident that the agreement is fully compliant with all relevant laws, regulations, and case law, and that it is clear and unambiguous, you can move on to the next step.

The benefits of having a well-drafted directors agreement

• Understand the legal framework governing director’s duties and responsibilities
• Outline the terms of employment and expectations, such as compensation and job duties
• Define the scope and responsibilities of the director as well as the company’s obligations
• Establish clear procedures for decision-making, communications, and dispute resolution
• Enable the company to ensure compliance with relevant laws and regulations
• Prevent potential conflicts of interest and liability

Once you have a clear understanding of the legal framework and the scope and responsibilities of the director and the company, you can start to draft a directors agreement.

Ensuring compliance with legal requirements

• Research the applicable laws and regulations relevant to the director’s duties
• Make sure to comply with the Companies Act 2006 and other relevant legislation
• Obtain advice from a qualified legal professional to ensure the agreement is comprehensive and compliant
• Fully review and understand the agreement before signing
• Make sure the agreement complies with existing employment laws and regulations
• Ensure the agreement is properly executed

Once all of these steps have been completed, you can be confident that the agreement is compliant with relevant laws and regulations and you can move on to the next step.

Setting expectations of directors and other parties

• Agree the duties of directors and other parties in the agreement
• Set expectations of performance for directors and other parties
• State the conditions around indemnity and insurance
• Outline the process for dispute resolution
• Describe the expectations of directors in relation to confidentiality and data protection

Once you have agreed the duties of directors and other parties, set expectations of performance, outlined the conditions around indemnity and insurance, described the expectations of directors in relation to confidentiality and data protection, and outlined the process for dispute resolution, you can check this off your list and move on to the next step.

Establishing clear roles and responsibilities

• Outline the specific roles and responsibilities of the directors
• Define the duties of a director, such as attending board meetings and making decisions
• Identify any additional roles that the director may have, such as a chair or a CEO
• Ensure that any roles and responsibilities are assigned on an individual basis
• Make sure that any overlapping roles are avoided
• Identify any potential areas of conflict between directors
• Document any changes to roles and responsibilities

Once you have outlined the roles and responsibilities of the directors, you can move on to clarifying compensation and ownership arrangements.

Clarifying compensation and ownership arrangements

• Decide on the type of remuneration for the directors (i.e. salary, bonuses, benefits, etc).
• Outline any ownership arrangements that the directors may have in the company, such as stock options or shares.
• Specify how the directors are to be compensated for their services, including any restrictions on compensation.
• Agree on any equity or ownership arrangements that the directors may have in the company.

Once you have finalized the details of the directors’ compensation and ownership arrangements, you can move on to the next step in drafting the agreement.

Steps to ensure the agreement is effective

• Ensure that the agreement is signed and dated by each of the directors and the company.
• Check that the document is in accordance with the Companies Act 2006 and any relevant local regulations.
• Review the terms of the agreement and determine whether any further clauses need to be included to ensure its effectiveness.
• Ensure that the agreement is properly filed with Companies House and other relevant authorities.

When all of the above steps have been completed, you can be sure that the agreement is effective and can be used as legally binding.

Ensuring the agreement is properly authorized

• Check that the company has the power to enter into the agreement under the Companies Act 2006
• Request a board resolution authorizing the agreement
• Check that the board has the necessary authority to enter into the agreement under the company’s articles of association
• Sign the agreement in accordance with the company’s articles of association
• Ensure that any third-party consents required to enter into the agreement have been obtained

You can check this step off your list when you have verified that the company has the power to enter into the agreement and that the board has the required authority, as well as all third-party consents needed.

Acting in accordance with the agreement

• Review the agreement to ensure that all directors understand their duties and responsibilities.
• Ensure that all directors understand the company’s obligations and those of other directors.
• Advise directors of their statutory duties under the Companies Act 2006.
• Make sure that all directors understand their indemnities and liabilities.
• Make sure that all directors understand the company’s risk management policies.
• Ensure that all directors comply with the agreement.
• Make sure that all directors understand the reporting requirements.
• Make sure that all directors are familiar with the company’s financial reporting standards.
• Make sure that all directors understand the company’s corporate governance procedures.
• Make sure that all directors understand the company’s compliance policies.

Once you have completed the above steps, you can check this off your list and move on to the next step.

Ensuring the agreement is up to date

• Review the agreement annually to ensure that all sections remain up to date
• Consult legal counsel if any changes are required
• Update the agreement and then have all parties sign it after changes have been agreed upon
• Keep a record of the version of the agreement with the updated information
• Once the agreement has been updated, you can move on to the next step of keeping records of the agreement.

Keeping records of the agreement

• Ensure at least one copy of the agreement is kept in a safe place
• Keep a record of all changes made to the agreement
• Make sure to keep a copy of the agreement for up to 3 years
• Notify all directors and relevant company personnel of changes to the agreement

You can check this off your list when all copies have been kept and all relevant parties have been informed.

Summary and conclusion

• Understand the purpose and scope of the agreement.
• Summarise the agreement in a concise manner, highlighting the key points, terms and conditions of the agreement.
• Check all the details are correct and no mistakes have been made in the drafting process.
• Obtain the necessary authorisations and signatures from the parties involved.
• Have the agreement reviewed by an attorney for legal advice if needed.
• Make sure both parties have a copy of the final agreement.
• When you have checked all the details and have the necessary authorisations and signatures, you can conclude the drafting process and move on to the next step.

Summary of the legal obligations of directors

• Understand the duties of directors under the Companies Act 2006
• Familiarise yourself with the general legal duties of directors, such as the duty to act in good faith, the duty to exercise reasonable care, skill and diligence, and the duty to avoid conflicts of interest
• Consider the fiduciary duties of directors, which include a duty to promote the success of the company, to exercise independent judgment, to refrain from making a personal profit, and to declare any interest in transactions
• Understand the statutory obligations of directors, such as the obligation to keep adequate accounting records, to prepare annual accounts, and to file accounts with Companies House
• Understand the duties of directors in relation to the company’s shareholders, including the duty to act fairly between shareholders
• Understand the duties of directors in relation to the company’s creditors and employees
• Consider the potential liabilities of directors, including liabilities under the Companies Act 2006, the Insolvency Act 1986 and other statutory and common law liabilities
• Consider the potential remedies available to the company in the event of a breach of a director’s duties

You know you can check this off your list and move on to the next step when you have a solid understanding of the duties of directors under the Companies Act 2006, the general legal duties of directors, their fiduciary duties, their statutory obligations, the duties of directors in relation to the company’s shareholders, creditors and employees, and the potential liabilities and remedies associated with a breach of a director’s duties.

Overview of the importance of a well-drafted director’s agreement

• Understand why having a well-drafted director’s agreement is important
• Research the relevant laws and regulations that may be applicable in your jurisdiction
• Understand the directors’ duties and how they can be incorporated into the agreement
• Consider how the agreement could be tailored to meet the specific needs of the company
• When you are confident that you have a thorough understanding of the importance of a well-drafted director’s agreement, you can move on to the next step.

Summary of steps to ensure the agreement is effective

• Research the current regulations and laws that apply to the roles and responsibilities of directors in the UK
• Familiarise yourself with the requirements for directors in the Companies Act 2006
• Ensure that all of the relevant information is included in the agreement, such as the director’s roles and responsibilities, their remuneration, and any other benefits they may receive
• Make sure the agreement is clear, concise and unambiguous
• Ensure that the agreement complies with the Companies Act 2006
• Have the agreement reviewed by a qualified lawyer to make sure it is legally binding
• Have the agreement signed and dated by the director and the company
• Keep a copy of the agreement for future reference

You’ll know this step is complete when you’ve completed the above steps and have a legally binding director’s agreement that complies with the Companies Act 2006.

Summary of the potential benefits of having a written agreement

• Understand the potential legal implications of being a director
• Define the duties, obligations and responsibilities of the director
• Establish a clear line of communication between the director and the company
• Set out the terms of the director’s remuneration and other benefits
• Provide clarity on the director’s rights, such as indemnification and insurance
• Outline any restrictions on the director’s ability to compete or act in a conflict of interest
• Protect the interests of the company
• How you’ll know when you can check this off your list and move on to the next step: When you have a clear understanding of all the potential benefits of having a written agreement and have taken the necessary steps to ensure the agreement is effective.

FAQ

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Example dispute

Suing a Company for Breach of Directors Agreement

• Research relevant legal documents, regulations and civil law to determine if the company’s actions are a breach of the directors agreement.
• Determine the information or actions which resulted in the suit being raised.
• Consider possible settlement options and if necessary, calculate possible damages.
• Assess the strength of the plaintiff’s case and potential defenses the company may raise.
• Evaluate the potential costs, risks and benefits of the lawsuit.
• Take into account the applicable statute of limitations, which determines how long the plaintiff has to file a lawsuit.
• Gather evidence to support the claim and analyze any relevant case law.
• Present the case and seek a successful outcome.

Templates available (free to use)

Executive Director Agreement
Managing Director Agreement

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