Explained: the difference between executive and non-executive directors
Who is an 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. They will be a statutory director and sit on the company’s board of directors. An executive director will be heavily involved in, and often responsible for, the day-to-day management and operation of the company.
Who is a non-executive 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 in which they are able to provide the company with expert advice.
What are the key differences between the roles of executive directors and non-executive directors?
Day-to-day management: An executive director will be involved in the day-to-day management and running of the company. In comparison, a non-executive director will usually not have a day-to-day role in the company’s management, but rather provide strategic, and other, advice to the company on a more ad-hoc basis. NEDs often have expertise in a particular area, industry or business sector and they will provide oversight and advice to the company about that.
Employment status: Executive directors will be employees of the company and enter into an employment contract (also known as an executive director agreement) with the company. In contrast, NEDs are not employed by the company and instead act as more of an independent consultant.
Legal obligations: There is no legal distinction under UK company law (the Companies Act 2006) between executive and non-executive directors. This means that the statutory obligations on directors apply to executive and non-exclusive directors alike - find out more about these obligations here.
Remuneration: As an employee, an executive director will be entitled to a salary as well as other employment benefits that employees are entitled to (and this information will be set out in an executive director agreement). In contrast, a non-executive director will usually receive a service fee from the company for carrying out their advisory role - for example, this could be a day rate or monthly fee.
What type of contract do I need to use when appointing an executive director or a non-executive director?
1. Executive director agreement
For an executive director, you would use an executive director agreement to document the terms of their relationship with the company. An executive director agreement (sometimes called a director’s service agreement) is a legally binding contract that sets out the terms and conditions that apply to the executive director’s employment, including their role and responsibilities, pay and benefits and holiday entitlement. An executive director agreement will also include a number of important legal terms to protect the company, including confidentiality obligations, intellectual property rights protection, termination rights and post-termination restrictions on the director.
Find out more about executive director agreements by reading this comprehensive guide.
2. Letter of appointment for non-executive director
As a NED is not an employee of the company, the company will not need to enter into an employment contract with them. Instead, it is common to use an appointment letter which will set out the terms of the NEDs appointment. This includes things like the fee (or other compensation) they will receive, how the appointment can be terminated, intellectual property rights protections and confidentiality obligations.
How can Docue help?
Whether you are appointing an executive director or non-executive director, Docue has you covered. Our executive director agreement and letter of appointment for non-executive directors have been drafted by lawyers and are maintained and kept up to date by lawyers.
Both templates can be fully tailored to suit your requirements. Simply click through the intelligent tick box options and text box answers, and you’ll have a fully customised executive director agreement (or letter appointing a NED) in no time at all.
Once you have created your documents, you can sign them electronically using Docue’s e-Signature function and then store them using Docue’s smart storage feature.
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