Directors' Service Contracts
The appointment of a director is of crucial importance to any company, and having a clear Directors’ Service Contract in place is vital.
This Directors’ Service Contracts section contains a range of terms and conditions that can be used by a company when engaging a director, including:
- contracts with and without payment in lieu of notice (PILON) provisions; and
- contracts with and without bonus and share option arrangements.
Each document in this section is compliant with the Companies Act 2006 and has been updated in line with the state pension changes introduced by the Pensions Act 2014, which removed the need for a contracting-out certificate clause.
These Directors’ Service Contracts are also available in the Employment Documents area in the Directors’ Service Contracts section.
When To Use These Templates
Use these templates when you are:
- offering a director role and need a formal offer letter and service contract;
- documenting the terms on which a director will provide services, including via a management services structure;
- putting in place service contracts with or without PILON and bonus/share option provisions;
- dealing with a director’s long-term service contract that requires member approval under section 188 Companies Act 2006;
- complying with disclosure and record-keeping requirements for directors’ service contracts under section 228 Companies Act 2006.
📁 Templates In This Section
Core director engagement documents
- Directors Employment Offer Letter
- Management Services Agreement
- Director’s Service Contract – Fixed Salary
- Director’s Service Contract - Bonus & Share Option Arrangements
Long-term service contracts – member approval (s.188)
- Letter to Members re Director’s Proposed Long Term Service Contract (s.188)
- Shareholders’ Ordinary Resolution – Approving a Director’s Long Term Service Contract
- Shareholders’ Written Ordinary Resolution to Approve a Director’s Long Term Service Agreement
- Section 188(5) Memorandum to Approve Director’s Long Term Service Contract
Service contract disclosure and access (s.228)
- Letter to Members re Written Memorandum of terms for Director’s Service Contract (s.228)
- Section 228 Memorandum of Terms of Director’s Service Contract
- Letter to Members re Location of Directors’ Service Contracts (s.228)
🔀 Document Toolkit: Typical Sequence (may vary)
- Agree the commercial terms for the director’s role (for example, fixed salary only or including bonus/share options and PILON).
- Issue a Directors Employment Offer Letter together with the appropriate Director’s Service Contract or Management Services Agreement.
- Where the contract qualifies as a long-term service contract under section 188, prepare the necessary member communications and obtain shareholder approval using the relevant resolutions and memorandum templates.
- Prepare and maintain the section 228 memorandum and ensure members are informed about where directors’ service contracts and memoranda are kept and how they can be inspected.
- Keep signed contracts, memoranda, resolutions and letters with the company’s statutory and employment records.
Each document in the Directors’ Service Contracts section is drafted to comply with the Companies Act 2006.
These Directors Service Contracts are also available in the Employment package in the Directors' Service Contracts collection.
- Directors Employment Offer Letter
- Management Services Agreement
- Director’s Service Contract – Fixed Salary
- Director’s Service Contract - Bonus & Share Option Arrangements
- Letter to Members re Director’s Proposed Long Term Service Contract (s.188)
- Shareholders’ Ordinary Resolution – Approving a Director’s Long Term Service Contract
- Shareholders’ Written Ordinary Resolution to Approve a Director’s Long Term Service Agreement
- Section 188(5) Memorandum to Approve Director’s Long Term Service Contract
- Letter to Members re Written Memorandum of terms for Director’s Service Contract (s.228)
- Section 228 Memorandum of Terms of Director’s Service Contract
- Letter to Members re Location of Directors’ Service Contracts (s.228)
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Frequently Asked Questions
Do shareholders have to approve a director's service contract?
Only where the guaranteed term is, or may be, longer than two years. Section 188 of the Companies Act 2006 then requires an ordinary resolution of the members before the provision is agreed. Ordinary appointments terminable on rolling notice do not need approval. Simply-Docs provides the Shareholders' Ordinary Resolution and written resolution versions plus the letters to members that support the approval process.
What happens if we agreed a long guaranteed term without member approval?
The offending provision is void to the extent of the contravention, and section 189 of the Companies Act 2006 deems the contract to include a term letting the company terminate it at any time on reasonable notice. The rest of the contract stands. If terms are still being negotiated, obtain approval first using the section 188 resolution and memorandum templates rather than repairing afterwards.
What is the section 188(5) memorandum and when is it needed?
A written memorandum setting out the proposed contract containing the long guaranteed term. For a written resolution it must be sent to every eligible member at or before the time the resolution is circulated. For a general meeting it must be available for inspection at the registered office for at least 15 days ending with the meeting date and at the meeting itself. Simply-Docs provides a Section 188(5) Memorandum template.
Can members see what our directors' service contracts actually say?
Yes. Section 228 of the Companies Act 2006 requires a copy of every director's service contract, or a written memorandum of its terms if it is unwritten, to be kept available for inspection and retained for at least one year after it expires. Members may inspect free of charge under section 229. Simply-Docs provides the section 228 memorandum and letters to members about where contracts are kept.
Does a letter of appointment or consultancy arrangement count as a service contract?
Yes. Section 227 of the Companies Act 2006 defines a director's service contract widely to include contracts for services and letters of appointment, not only employment contracts. The two year approval rule and the inspection duty therefore apply to these as well. Where services are provided through a company, the Management Services Agreement template documents that structure while keeping the statutory requirements in view.
Should the contract include a payment in lieu of notice clause?
A PILON clause lets the company end the employment immediately by paying for the notice period, giving a clean exit and preserving restrictive covenants that a dismissal in breach of contract could otherwise destroy, at the cost of committing to the payment. Simply-Docs offers the Director's Service Contract - Fixed Salary and the Bonus & Share Option version each with and without PILON so you can choose deliberately.