Directors’ long term service contracts
Directors’ long term service contracts

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Directors’ long term service contracts
  • Meaning of ‘service contract’
  • Shareholder approval of a guaranteed term of a director’s employment in excess of two years
  • Meaning of ‘guaranteed term’
  • Shareholder approval
  • Consequences of a failure to obtain approval of a long-term service contract

The Companies Act 2006 (CA 2006) requires any provision in a director's service contract under which the guaranteed term of the director's employment is, or may be, longer than two years to be subject to approval by the members of the company. Approval is required as long term service contracts with directors are arrangements which are generally considered to be particularly open to abuse. The relationship between the statutory provisions requiring approval of such a provision and the general duties of a director that are set out in statute is discussed in Practice Note: Directors' duties—scope, nature, interpretation and application.

The term ‘director’, for the purpose of these statutory provisions, includes any person occupying the position of director, by whatever name called (ie whatever the official title used), and a shadow director.

A company must observe various other statutory requirements In relation to directors’ service contracts, see in particular Practice Note: Directors’ service contracts—retention, copying and inspection.

Companies with a premium listing of equity shares on the Official List of the London Stock Exchange (listed companies) are also subject to the Listing Rules of the Financial Conduct Authority and to the UK Corporate Governance Code, which impose an additional layer of regulation in relation to directors’ service contracts: see Practice Note: Directors’ service contracts—listed companies.

The Chartered Governance Institute (formerly known as ICSA: The Governance Institute)

Popular documents