Shareholders’ OR – Approving a Director’s Long Term Service Contract
Under section 188 of the Companies Act 2006, directors’ service contracts with a guaranteed term which is (or may be) longer than 2 years must be approved by an ordinary resolution of the shareholders of the company.
This Shareholders’ Ordinary Resolution – Approving a Director’s Long Term Service Contractcan be used to record a resolution either by the written resolution procedure or at a general meeting of the shareholders, to approve a provision under which the guaranteed term of a director’s employment is or may be longer than two years. You should consult the company’s articles to check that a higher approval level – such as special resolution – is not required.
Determining the length of the guaranteed period is subject to complex rules. The guaranteed term of a director’s employment is either:
(a) the period (if any) during which the director’s employment continues (or may be continued) except at the option of the company (whether under the original agreement or under a new agreement entered into in pursuance of the original agreement), and it cannot be terminated by the company by notice, or it can be terminated only in specified circumstances, or
(b) in the case of employment which can be terminated by the company by notice, the period of notice required to be given.
If the employment has a period within paragraph (a) and a period within paragraph (b), the aggregate of those periods will be the guaranteed term.
If the company enters into a further service contract more than six months before the end of the guaranteed term of a director’s employment (except where the original contract gives the other party that right), then the unexpired period of the guaranteed term of the original contract will be added to the guaranteed term of the new contract.
Before this resolution is passed, a written memorandum setting out the proposed agreement incorporating the term must be either sent with the written resolution or made available for inspection at the registered office for not less than 15 days beforehand if the resolution is to be put before a general meeting.
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