A Director’s Service Agreement (DSA) is a formal employment contract between a company and one of its directors. It outlines the director’s appointment, responsibilities, remuneration, and termination provisions, as well as legal obligations under the UK Companies Act 2006.

Unlike standard employment contracts, a DSA reflects the dual role of a director as both an officer of the company and, in many cases, an employee. It ensures that directors understand their statutory duties, fiduciary responsibilities, and reporting obligations—while also offering clarity around their salary, benefits, and expectations.

What is a Director’s Service Agreement?

A Director’s Service Agreement is a legally binding contract that governs the relationship between a company and a director. It provides a structured framework for the director’s role, combining elements of employment law with corporate governance standards.

Key elements typically include:

• Appointment details and duties
• Statutory responsibilities under company law
• Salary, benefits, and bonus entitlements
• Confidentiality and intellectual property clauses
• Termination rights and restrictive covenants

The agreement ensures both legal compliance and professional clarity—protecting the company’s interests while offering transparency to the director.

Why is a DSA important?

A DSA serves as a vital tool in safeguarding both the company and the director by:

• Complying with UK legal duties
  Under the Companies Act 2006, directors must act in good faith, avoid conflicts of interest, exercise independent judgment, and promote the company’s success. These duties can be contractually reinforced in the DSA.
• Clarifying employment status
  Many directors are also employees. A DSA helps distinguish between their board-level duties and day-to-day operational responsibilities.
• Preventing disputes
  The agreement specifies what happens if the relationship ends, whether due to resignation, disqualification, or dismissal.
• Protecting company assets
  IP rights, confidential information, and non-compete clauses are typically addressed to prevent reputational or financial harm.

Companies without a DSA in place may find it harder to enforce post-employment restrictions or defend against claims of unclear expectations.

What are a director’s legal duties under UK law?

Under the Companies Act 2006, directors of UK companies are subject to seven core statutory duties, codified in Sections 171–177. These duties are owed to the company itself, and they underpin the legal and fiduciary framework within which directors must operate.

Note! These statutory obligations apply irrespective of whether they are expressly referenced in the Director’s Service Agreement, however including them in the agreement serves to reinforce their importance and applicability.

1. Duty to act within powers

A director must act in accordance with the company’s Articles of Association and must only exercise their powers for the purposes for which they were conferred. This is both a governance and a fiduciary obligation.

Directors must not use their powers for an improper purpose, e.g. issuing shares to dilute a shareholder’s control or to block a takeover may be unlawful unless it can be shown that the primary purpose is aligned with the company's long-term interests.

2. Duty to promote the success of the company

This requires directors to act in good faith in a way they consider most likely to promote the success of the company for the benefit of its members as a whole.

3. Duty to exercise independent judgment

Directors must not subordinate their decision-making to others without appropriate authority. This means they cannot, for example, agree in advance to always vote with another director or external investor. While directors may act in accordance with professional advice, they must critically evaluate such advice and remain autonomous in their decisions.

4. Duty to exercise reasonable care, skill, and diligence

This duty incorporates both subjective and objective standards:

• The general knowledge, skill, and experience that may reasonably be expected of a person carrying out the same functions as the director in question (objective)
• The specific skills and experience that the director actually possesses (subjective)

5. Duty to avoid conflicts of interest

Directors must not place themselves in situations where their personal interests conflict—or may conflict—with the interests of the company. This duty is strictly enforced, and actual harm or dishonesty need not be proven.

6. Duty not to accept benefits from third parties

Directors are prohibited from accepting any benefit, gift, or inducement from third parties that may create a conflict of interest. This includes anything offered by a customer, supplier, or potential bidder. The duty continues after resignation, where the benefit relates to decisions made during the director’s time in office.

7. Duty to declare interests in proposed transactions

If a director is directly or indirectly interested in a proposed transaction with the company, they must declare the nature and extent of that interest before the company enters into the transaction. This enables informed decision-making by the board and maintains transparency. Failure to declare such an interest can render the contract voidable and may lead to claims for breach of fiduciary duty.

Create your Director’s Service Agreement with Bind

With Bind, you can create a tailored Director’s Service Agreement in minutes. Just enter the company and director’s details, appointment terms, and any additional preferences such as bonus structure or restrictive covenants. Bind will then create a correct and professional Director's Service Agreement.

You can also edit the document using AI or manually, then sign and store electronically for speed and convenience.

Director’s Service Agreement – free template

Parties
(1) [Company Name], a company incorporated in [Country], with Company Number [Number], and having its registered office at [Address] (the "Company"); and

(2) [Name], residing at [Address](the "Director").

Appointment and Term
The Company appoints the Director as an Executive Director starting from [Date]. This Agreement remains in effect until terminated by either party in accordance with the terms below.

Duties and Responsibilities
The Director agrees to:

• Discharge all statutory duties under the Companies Act 2006;
• Comply with the Articles of Association and governance policies;
• Avoid conflicts of interest and disclose any personal interest in company transactions;
• Attend board and committee meetings as required;
• Promote the success of the company and exercise independent judgment in all decisions.

Remuneration and Benefits
The Director will receive:

• An annual salary of [amount], payable [monthly/annually]
• Performance-based bonuses at the discretion of the Board

Confidentiality and Intellectual Property
The Director shall:

• Keep all confidential company information secure;
• Assign to the Company any intellectual property developed during the course of duties.

Indemnity and Liability
The Company will indemnify the Director for any liabilities arising from proper execution of their duties, except in cases of misconduct or fraud.

Expenses
All reasonable expenses incurred while performing duties will be reimbursed, subject to receipts and approval.

Termination
This Agreement may be terminated:

• By either party with [number] months’ written notice;
• Immediately for misconduct, breach of fiduciary duty, or disqualification as a director.

Miscellaneous Provisions
This Agreement constitutes the full understanding between the parties.
It may not be assigned without consent.
Force majeure, waiver, and severability clauses apply.

Governing Law and Jurisdiction
This Agreement shall be governed by [Country] law, with all disputes resolved exclusively by the courts of [City].

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