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Director's Service Contracts

Director's Service Contracts

Directors, including shadow directors, are likely to have service contracts with the company detailing their rights and obligations. A copy of every Director's Service Contract must be open to inspection either at the company’s registered office or at the single alternative inspection location permitted under the Act (in the latter case, the company must notify Company House of the location of the Service Contracts). The copies must be retained by the company for inspection for at least one year following the date of termination or expiry of the Service Contract.

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. 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.

If a company does not have members’ approval for a service contract with a guaranteed term of more than 2 years, then the provision is void, to the extent of the contravention, and a term will be automatically inserted in the service contract entitling the company to terminate it at any time on reasonable notice.

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