A Director’s Service Agreement or Contract is a contract by which a company hires a director as an employee. It is a long-form contract with detailed provisions on various aspects of employment.
When drafting a Director’s Service Contract, the employer should be aware of specific statutory provisions in determining the terms of employment, for example, the amount of minimum wage (if applicable), rest days, paid annual leave, statutory holidays, or maximum working hours (if applicable).
It’s more detailed than a director’s appointment letter and includes comprehensive information regarding the director’s responsibilities, term of service, compensation, benefits, and grounds for termination.
It may also include clauses related to confidentiality, non-competition, and non-solicitation.
A director’s service contract is an employment contract between a company and a director. It sets out the roles and responsibilities of the director within an organisation.
Legally every company needs a service contract to hire a director.
A well-written role and responsibilities in a service contract will help an organisation and the director abide by their duties legally and fairly.
Normally, an organisation hires a director for a specific term, so it’s important to mention these details to avoid confusion and disputes.
A clear breakdown of the director’s remuneration and benefits is required to inform both parties about the expenses and costs incurred in an organisation.
A director is entitled to retirement benefits and pension after serving their tenure.
Every director is entitled to certain holidays like sick, casual, and privilege leave. A clear breakdown of the leave should be mentioned in the contract.
A director of any company has access to company documents and records, including financial statements. It’s crucial to maintain confidentiality for the success of any organisation, and a non-disclosure agreement (NDA) will help protect confidential information.
Another essential thing to include in a service contract is the country’s governing law and jurisdiction, which will help an organisation clarify why a director is hired.
There are different restrictions on appointing directors according to the company’s nature.
If it is a public company, there should be a minimum of 3 directors. If it’s private, there should be a minimum of 2 directors. A company can have a maximum of 15 directors according to the Company Act, 2013.
A director must be over 18 years old.
A director’s service contract is a crucial document that sets out the duties and obligations of the directors and protects the legal rights of both director and the company.
There are various reasons why a director’s service contract is important:
Resolution of disputes
A well-drafted service agreement helps resolve disputes if they arise in the future, saving a lot of time and money for the organisation and directors.
Due diligence exercise
Practising due diligence in any organisation is crucial to assure employees and attract new investors by setting a paradigm of well-organised business processes.
