When Do I Need A Director’s Service Agreement?

Directors are crucial to every company structure. Their decisions can shape the future of the company, thus it’s vital that they are fully informed of their expectations and general responsibilities.

It is advisable for a company to have a Director’s Service Agreement drafted as soon as they appoint a new director.

You may be familiar with a standard Service Agreement, but a Director’s Service Agreement is tailored specifically to the director and the obligations they owe to the company and its overall performance.

What Does A Director’s Service Agreement Include?

A Director’s Service Agreement will include pertinent information regarding the directors’ relationship and duties towards the company. It will outline matters such as the authority the director has, their remuneration, termination rights, confidentiality, and intellectual property. The agreement can be comprehensive and include any aspect deemed significant by the company.

This Agreement can differ based on the company and the nature of its operations, so it’s beneficial to consult with a lawyer to ensure all critical issues are addressed in writing.

Am I Legally Required To Have A Director’s Service Agreement?

In New Zealand, there is no statutory obligation to have a Director’s Service Agreement. Nonetheless, it is strongly advised.

Consider it akin to an Employment Contract for a director, irrespective of whether they are engaged contractually or as an internal employee. It serves as a document to regulate their conduct.

As highlighted earlier, the service agreement will detail essential aspects of the director’s role within the company. The agreement ensures that both the director and the relevant members of the company have a mutual understanding of their expectations of the director. It also provides a basis to hold them accountable for their actions as the company director.

Example Jasmine has been appointed as the director at Hot Choc Ltd. During her induction, she signed a director’s service agreement among many other documents. At a major conference for ‘cold weather drinks’, Jasmine encounters the CEO of Chai Lattes, Ali. The two attended university together and were quite familiar with each other. Ali inquires whether it was a product or a manufacturing technique that made their hot chocolate so creamy. Jasmine knew she was not permitted to disclose specific ingredients or the technology they used, but she was uncertain if she could respond to Ali’s general question. Deciding to check her Director’s Service Agreement, Jasmine found that even disclosing that level of information to Ali would breach the confidentiality clause. Jasmine informs Ali that she cannot share that information without jeopardising her position at the company.

If you’re considering appointing a director, talk to us about our package today. We’ll draft a Director’s Service Agreement tailored for your business.

Our Director’s Service Agreement package includes:

• Drafting a Director’s Service Agreement in line with the specific needs of your business
• Phone consultations (up to 60 minutes) with a Sprintlaw lawyer who will take your instructions, advise you on the legal matters you need to be aware of, and answer your questions about the document
• 1 complimentary revision to the final draft we provide you, provided you request the amendment within 10 business days of us delivering the final draft

Please be aware that this package does not encompass specific advice about whether the director will be classified as an employee or contractor for employment law or tax purposes, nor advice regarding the employer’s responsibilities under any applicable employment legislation.

Next Steps

Contact us about the package if you’re interested in drafting a director’s service agreement or if you require further information – we’re here to assist!

If you would like a consultation to explore your options, you can reach us at 0800 002 184 or [email protected] for a free, no-obligation chat.

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