{"id":181106,"date":"2023-05-19T01:26:24","date_gmt":"2023-05-19T00:26:24","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=181106"},"modified":"2026-05-29T05:38:15","modified_gmt":"2026-05-29T04:38:15","slug":"directors-long-term-service-contracts","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/directors-long-term-service-contracts\/","title":{"rendered":"Restrictions on Directors’ Long-Term Service Contracts"},"content":{"rendered":"\n

A director’s service contract is a formal engagement agreement that governs the terms on which a director serves a company under the Companies Act 2006<\/em>. The Act grants shareholders an absolute statutory right to approve any service contract guaranteeing a director’s engagement for more than two years, reflecting Parliament’s recognition that directors negotiating their own long-term contracts face an inherent conflict of interest. The Companies Act 2006<\/em> also imposes broader duties on directors, including the duty to avoid conflicts of interest and the duty to declare interests in transactions, both enforced by Companies House and overseen within the framework of UK company law. This article will explain the law restricting directors’ power to enter service contracts.<\/p>\n\n\n\n

What is a Service Contract?<\/h2>\n\n\n\n

A service contract is a director\u2019s employment contract<\/a> with the company. In some cases, a director may not qualify as an employee of the company. Nonetheless, they may have a contract with the company that sets out the terms of their engagement with it. Any such arrangement constitutes a service contract. It does not matter if the long-term service contract is written or not. <\/p>\n\n\n\n

Who Determines the Terms of Service Contracts? <\/h2>\n\n\n\n

The default position is that directors have broad powers to negotiate the terms of their own service contracts with the company. This is consistent with the general principle that directors manage the company’s day-to-day affairs.<\/p>\n\n\n\n

Of course, a director\u2019s power to set the terms of their contract creates a conflict of interest. For instance, directors may seek to maximise their salary or stock options. To check this power, the law grants shareholders the absolute right to approve<\/a> all service contracts with a term guaranteeing the director\u2019s engagement for more than two years.<\/p>\n\n\n\n

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That is to say, a company will not be bound by a service contract whose term is longer than two years without <\/em>the shareholders\u2019 approval.<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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