When Do I Need A Director's Service Agreement? (2026 Updated)

If you’re running a company in New Zealand, it’s easy to assume your directors are “covered” just because they’re involved in the business day-to-day.

But in practice, the director role sits in an unusual space: directors have serious legal duties under the Companies Act, they often do real work for the business, and they’re frequently also shareholders (or founders) with their own expectations about pay, decision-making and what happens if things go sideways.

That’s where a Director’s Service Agreement can make a big difference. This (2026 updated) guide explains when you need one, what it usually covers, and how it fits in with your other key company documents.

What Is A Director’s Service Agreement (And Why Does It Matter)?

A Director’s Service Agreement is a contract between your company and a director, setting out the terms on which that director provides services to the company.

It’s a bit like an employment contract, but it’s not always an employment agreement (and it shouldn’t automatically be treated as one). The key point is that it creates clarity around the commercial arrangement, including things like:

• what the director is expected to do
• how they’ll be paid (if at all)
• how expenses and benefits work
• confidentiality and IP ownership
• what happens if the director resigns or is removed
• restraint-style protections (where appropriate)
• company policies and compliance expectations

Without a clear agreement in place, director arrangements often rely on “understandings” that feel fine while the business is growing - but can quickly become messy when:

• cashflow tightens and you need to reduce payments
• a director stops contributing but still wants to be paid
• another founder believes a director is overstepping
• you want to remove a director and there’s pushback
• an investor asks for a tidy governance and documentation pack

In other words: a Director’s Service Agreement is a legal foundation document. It reduces ambiguity and gives everyone a shared reference point, so you’re protected from day one.

When Do I Actually Need A Director’s Service Agreement?

Not every company needs a Director’s Service Agreement on day one. But many do - especially once your company moves beyond “idea stage” and starts operating like a real business (revenue, staff, contractors, customers, investors, compliance obligations).

Here are the most common situations where having a Director’s Service Agreement is strongly recommended.

If The Director Is Being Paid (Salary, Fees Or Regular Drawings)

If the director is receiving payment for services, you want a written agreement that sets expectations and protects the company. This includes:

• director fees (monthly/annual fees for board involvement)
• a salary for an executive role (e.g. Managing Director)
• performance-based payments or commissions
• regular “drawings” that are intended to be remuneration

This matters for governance and record-keeping, and it also helps reduce disputes about whether payments were “owed”, whether they can be changed, and what happens during notice periods or transitions.

If The Director Also Does Hands-On Work In The Business

In many NZ SMEs and startups, a director isn’t just attending board meetings - they’re building the product, managing staff, speaking to customers, running marketing, or overseeing operations.

That’s where role confusion can creep in. Are they acting as a director, an employee, a contractor, or all three?

A Director’s Service Agreement helps separate:

• governance responsibilities (director duties and decision-making), from
• service responsibilities (work performed for the company, KPIs, time commitment and pay terms)

If a person is genuinely an employee as well, you may need an Employment Contract in addition to (or instead of) a director arrangement, depending on the structure and what you’re trying to document.

If You Have Multiple Founders Or Shareholders

Where there’s more than one shareholder/founder, misalignment can happen fast - even when everyone starts with the best intentions.

A director appointment doesn’t automatically answer questions like:

• Who decides the director’s pay?
• What happens if the director underperforms?
• Can the company end the arrangement quickly if needed?
• What information can the director use after leaving?

This is also where the Director’s Service Agreement needs to match (not contradict) your other governance documents, like a Shareholders Agreement or your Company Constitution.

If You’re Bringing In An External Or Independent Director

If you’re appointing an independent director (for expertise, credibility or investor confidence), a Director’s Service Agreement is usually a must-have.

External directors will typically expect clarity on:

• fees and payment timing
• time commitment and meeting cadence
• access to information and support
• insurance / indemnity expectations (where applicable)
• confidentiality and conflicts of interest

From the company’s perspective, it’s also how you set boundaries and protect your business if the relationship doesn’t work out.

If You’re Preparing For Investment, A Sale Or A Due Diligence Process

If you’re raising funds or selling the business, your corporate paperwork tends to get stress-tested. Investors and buyers often want to see:

• clear governance documents
• clear service arrangements for key people
• proper IP ownership and confidentiality terms
• no “handshake deal” arrangements that could create risk

Cleaning this up early is generally cheaper and less painful than rushing it through during due diligence.

Director Vs Employee: Do I Need An Employment Agreement Instead?

This is one of the biggest confusion points for founders.

A director is an officeholder of the company, appointed under the Companies Act 1993. An employee is engaged under an employment relationship (and protected by employment law).

Sometimes, the same person can be both:

• a director (governance and statutory duties), and
• an employee (operational role with employment rights and obligations)

But you don’t want to guess or “copy-paste” a template, because classification affects things like termination processes, holiday pay, and dispute rights.

Why The Difference Matters

If you treat someone as a contractor or officeholder when they’re effectively an employee, you can create compliance risk. Employment status is fact-specific, and getting it wrong can lead to disputes and liability.

On the other hand, if you treat a director arrangement like employment when it’s not, you can accidentally:

• create obligations you didn’t intend
• make removal more complex
• blur governance vs operational responsibilities

Many companies use a Director’s Service Agreement to cover the director services and commercial terms, and then (where appropriate) use a separate employment agreement for any true employee role.

If the director is providing services but not as an employee, you might instead document the relationship via a Director’s Service Agreement (tailored properly) to avoid ambiguity.

What Should A Director’s Service Agreement Include?

There’s no one-size-fits-all document, but a good Director’s Service Agreement usually covers the “pressure points” - the areas most likely to cause disagreement later.

Here are common clauses and why they matter.

Role, Duties And Time Commitment

This section sets expectations about what the director actually does. Depending on your company, that might include:

• board meeting attendance and preparation
• strategic oversight
• executive management responsibilities
• reporting requirements and KPIs
• availability (e.g. days per month, hours per week)

Clear scope reduces “I thought you were doing that” frustration - on both sides.

Remuneration, Expenses And Benefits

This is often the first place disputes arise, especially in founder-led businesses.

Your agreement may cover:

• director fees vs salary (or both)
• when payment is made and how it’s approved
• superannuation/KiwiSaver treatment (if relevant)
• reimbursement of expenses (and approval limits)
• non-cash benefits (vehicle, phone, travel)

It’s also common to include wording around changing or suspending remuneration in certain circumstances (for example, cashflow issues) - but this needs careful drafting to be enforceable and fair.

Term, Resignation And Removal

Directors can resign, and companies can remove directors (subject to the Companies Act and your constitution). But your agreement should address the commercial side, such as:

• notice periods for resignation
• handover obligations
• return of company property and access
• what happens to unpaid fees or accrued entitlements (if any)
• immediate termination rights for serious misconduct

These provisions can save a lot of time (and stress) if the relationship breaks down.

Confidentiality And Information Handling

Directors typically have access to sensitive information: finances, customer lists, product plans, supplier pricing, staff issues and investor discussions.

Confidentiality clauses help protect the business during and after the relationship. They also link neatly with other confidentiality tools, such as a Non-Disclosure Agreement, depending on the context.

Intellectual Property (IP) Ownership

If a director contributes to strategy, branding, product development, systems, written content, code, designs or templates, you want to be crystal clear about who owns what.

In most operating companies, the commercial intention is that IP created in the course of providing services belongs to the company (or is assigned to the company).

This becomes especially important if the director later leaves and starts something new, or if the business is sold and the buyer wants comfort that the company truly owns its assets.

Conflicts Of Interest

Directors are expected to act in the best interests of the company, and conflicts of interest can create real legal and reputational risk.

A Director’s Service Agreement commonly includes obligations to:

• disclose conflicts (including competing interests)
• avoid misuse of company opportunities
• follow internal conflict procedures

This can work alongside a broader Conflict Of Interest Policy, particularly where your directors also manage staff and contractors.

Restraints (Non-Compete / Non-Solicit) Where Reasonable

Restraint clauses can be tricky in NZ - they need to be reasonable and tailored to be enforceable. But for some businesses, they’re an important layer of protection.

Depending on the situation, you might include:

• a non-solicitation clause (clients/customers)
• a non-poaching clause (staff/contractors)
• a limited non-compete clause (narrow time and geography)

If restraints are relevant, it’s worth getting them drafted properly (generic wording can be hard to enforce and may not reflect what your business actually needs).

How Does A Director’s Service Agreement Fit With Other Company Documents?

A Director’s Service Agreement shouldn’t sit in isolation. It works best when it “matches” your wider legal setup.

Here’s how it typically interacts with other documents.

Company Constitution

Your constitution often sets the rules for:

• appointing and removing directors
• director decision-making processes
• shareholder voting and company powers

If your service agreement says one thing (e.g. a director must be paid a certain fee for a certain term) but your constitution allows removal at any time, you can end up with conflicting obligations.

That’s why it’s important that your Director’s Service Agreement aligns with your Company Constitution and any shareholder arrangements.

Shareholders Agreement

A shareholders agreement usually covers “ownership issues” like:

• how shares can be transferred
• what happens if a founder leaves
• deadlocks and dispute resolution
• reserved matters requiring shareholder approval

But it may also include director-related mechanics (like who can appoint directors, or when a director must resign).

If you have a Shareholders Agreement, your Director’s Service Agreement should be consistent with it - otherwise you risk creating loopholes or accidental breaches.

Deeds Of Access, Indemnity And Insurance

Directors often ask about protection for their personal exposure. While a Director’s Service Agreement can reference indemnities and insurance, those protections are commonly documented separately.

For example, a company may enter into a Deed Of Access And Indemnity to address matters like:

• access to company records after ceasing to be a director
• indemnities (to the extent permitted by law)
• director & officer insurance arrangements

This is particularly relevant for external directors or where the business has higher risk exposure.

Employment And Contractor Documents

If directors also work in the business, you may need additional documents, depending on how the relationship is structured. Common examples include:

• an Employment Contract for genuine employee duties
• a contractor agreement for independent services
• company policies for confidentiality, security, acceptable use and conflicts

The aim is to avoid overlap that creates confusion, while still ensuring the company is protected across all aspects of the relationship.

Key Takeaways

• A Director’s Service Agreement is a practical way to set clear expectations about a director’s role, payments, responsibilities, confidentiality, and exit terms.
• You’re much more likely to need a Director’s Service Agreement if the director is being paid, doing hands-on work, joining as an external director, or if there are multiple founders/shareholders involved.
• Directors and employees are not the same thing, and if a director is also working in the business you may need an employment agreement as well (or a carefully tailored service arrangement).
• A strong Director’s Service Agreement typically covers duties, remuneration, expenses, IP ownership, confidentiality, conflicts of interest, and what happens on resignation or removal.
• Your Director’s Service Agreement should align with your Company Constitution and Shareholders Agreement so you don’t accidentally create conflicting rules or obligations.
• Trying to DIY director documentation can backfire - tailored drafting is usually far cheaper than dealing with a dispute later.

If you’d like help putting a Director’s Service Agreement in place (or reviewing what you currently have), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.