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Holding the position of director of a company is firstly as a legal office-holder of the company. Directors are generally the people through whom a company acts, and carries out its day-to-day functions. Directors may also be employees of the company in addition to holding the legal office of director. An employee-director is often known as an “executive director”, as opposed to the director that is not an employee of the company –“a non-executive director”.

A director owes duties to the company, whether or not he/she is an employee of the company. Some directors may have specific responsibilities assigned to them either through any board resolution, the articles of association of the company, or through a service agreement with the company. The director owes duties including:-

i. To act honestly and in good faith in the interests of the company,
ii. To act in accordance with the powers given to him/her by the company,
iii. To avoid conflicts of interest,
iv. To act as a trustee of company property under his/her control
v. To promote the success of the company,
vi. To exercise reasonable skill and care in the performance of his/her duties, and
vii. To exercise independent judgement.

Some companies call senior employee, particularly those in charge of particular departments or functions “directors” when they are not actually company directors in the sense of office-holders with their details reported to Companies House. These are in fact very senior employees. However, even those directors may also have more onerous and serious responsibilities (and liabilities) imposed upon him/her by statute.

The contracts used for directors, and other senior staff, are often referred to as “service agreements” or “service contracts”. However, in a legal context they are still contracts of employment. As such, the agreement between the company and the employed director still has to contain all the usual obligatory information – such as date that continuous employment began, pay details, holiday entitlements, sick pay details place of work, notice entitlements etc.

As directors have great responsibility within a business the appropriate contract for them should properly record all these responsibilities. In addition it should correctly record any other unusual features (such as commission/bonus scheme details/insurances and other benefits). It is vital that these extra responsibilities and rewards are properly recorded so that future disputes or disagreements can be avoided. (PAYGcontract of employment for director/senior employee.


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