Agreements between directors and a company: 5 top FAQs answered

1. Who can be appointed as a director?

Directors in the UK can be either individuals or companies (known as corporate directors):

• for individual directors, a director must be aged 16 or over and not be disqualified from being a director. Directors do not have to live in the UK; and

• for corporate directors, companies must have a UK registered office address.

2. What is the difference between an executive director and a non-executive director?

An executive director is someone who has been employed by a company to carry out, and hold the position of, director in that company. An executive director will be heavily involved in, and often responsible for, the day-to-day management and operation of the company. You would use an agreement between a director and a company when appointing this type of director.

A non-executive director (sometimes referred to as a NED) is someone who has been appointed to provide strategic oversight and advice to a company. They will sit on the company’s board of directors, but are not employed by the company. They are generally not involved in the day-to-day management of a company, but instead have expertise in a particular area or industry. As NEDs are not employed, you would not use a director's employment contract for a NED, but would use a letter of appointment of a non-executive director instead.

Find out more information about executive directors and non-executive directors and the key differences between them here.

3. What clauses does an agreement between a director and a company need to include?

An agreement between a director and a company is an employment contract for a director. It is therefore important to include the information that is legally required to be provided in an employment contract, as well as additional legal protections for the company. This will typically include:

• “Written particulars of employment” - this is the information legally required to be provided to employees under UK employment law and includes details of the role, salary, benefits and probationary period;

• Responsibilities and duties of the director;

• Sickness and other absence process;

• Process for termination of the contract with notice and without notice, as well as a clause allowing for payment in lieu of notice;

• Obligations on termination, such as returning property and restrictions on competing with the business / poaching staff and customers;

• Garden leave;

• Protections for confidential information and intellectual property rights

• Details of disciplinary and grievance policies.

Find out more using this handy guide about the top 7 legal terms to include in an agreement between a director and a company.

4. How can I draft an agreement between a director and a company?

Docue’s director's agreement template has been drafted by lawyers and includes lawyer-drafted guidance notes to guide you through the contract creation process. All you need to do is answer a series of simple questions and you will create a fully customised agreement between a director and a company in no time at all, that has been adapted to suit your situation based on the answers you provided.

After you have created your contract, you can use Docue’s e-signature function to send it out for signing, and once signed it can be stored safely via Docue’s secure storage feature.

5. What else do I need to do to appoint a new director of my company?

Putting in place an agreement between a director and a company is one step in appointing an executive director - but it’s important to not forget about the other steps that need to be taken, including:

1. Get approval for the appointment - you should check your company’s articles of association to find out the process for approving the appointment of a new director. Often, the board of directors of the company will have the authority to appoint new directors, in which case the decision of the board should be recorded via board minutes. If shareholder's consent is required for the appointment, the decision of the shareholders can be recorded using written resolutions.

2. Letter of consent to act - UK company law requires that at any time when an officer (i.e. a director or company secretary) is being appointed, a statement is made to the effect that they have consented to act in that capacity. This consent can be recorded via a letter of consent to act from the director.

3. File AP01 or AP02 with Companies House - you'll also need to inform Companies House that you have appointed a new director within 14 days of their start date by filing a Form AP01 (or AP02 for corporate directors).

4. Update statutory registers - under UK company law (the Companies Act 2006), a company is required to maintain a set of records (also known as 'registers' or 'books'). Companies are also required to make these registers available to shareholders on request. The statutory register will include a register of directors that should be updated when a new director is appointed.

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