Why does a Director need a Service Agreement?

This week we are talking about the Employment Law aspects of being a director and why, even in a small business, it’s important to have the right paperwork. We’re focusing on the Directors Service Agreement which is a contract between the director and the company outlining the work to be carried out, pay and other core requirements to avoid disputes. How many times have you seen on forums, Quora and in the news, stories of big fall-outs in small companies who fail to get their agreements sorted out and then quarrel over who is doing the most work, the hardest work or bringing in more money? Its time to sort it all out!

Whilst the template version will not suit larger companies or those with investors, it’s a very good starting point for new directors.



A Director, whether or not he is a shareholder, is employed by a limited company. A Director’s Service Contract, Director’s Service Agreement or Director’s Service Level Agreement (SLA) are really different names for the same document. The name Director’s Service Contract is the name given to this type of agreement in the 2006 Companies Act.

A Director’s Service Level Agreement (SLA) is effectively a form of employment contract between the Director and the Company. It is invaluable in all companies but particularly to smaller companies because it defines roles and responsibilities. The law requires that a copy of the SLA is available for inspection with the Company.

Although the law in England and Wales covers the basics of a Director’s duties, the SLA sets out the terms of the Director’s appointment with the Company. It outlines the obligations of both the Director (what are the duties, what can or can not be done, hours worked, payment of salary and expenses, what happens on termination, disciplinary events etc).

The document can be customised and is intended to protect both the Company and the Director, so that all parties are aware of what the particular role entails.

All of our documents combine professional legal and personnel / HR knowledge with practical experience in business to provide an easy to use document which meets with legal responsibilities and obligations.


It covers the issues that such agreements need to deal with including:

  • Authorisation and date of appointment.
  • Duties etc – the “job”.
  • Hours of work.
  • Remuneration (payment).
  • Expenses.
  • Holidays and absences, including sickness.
  • Disciplinary issues.
  • Covenants.
  • Intellectual property ownership.
  • Confidentiality.
  • Termination of agreement.
  • Post termination – duties, restrictions, liabilities and more
  • Special Conditions for Non Executive Directors

Got Questions? Phone 01244 30043 or email us at Support@lawhound.co.uk

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