Settlement agreement for a director leaving the board

A director leaves in two capacities, as an employee and as an officer of the company, and the settlement agreement has to end both: the employment on terms that waive the claims, and the directorship by a resignation that is filed, with the payments for loss of office checked against the shareholder approval the Companies Act requires. It also has to deal with what a director often holds that an employee does not: shares and options subject to leaver provisions, personal guarantees, a loan account, and insurance cover that should continue. I draft the agreement for the company for a fixed fee of £795, delivered in three working days, with a note on the conversation; a version including negotiation with the director's adviser is £995.

Who this is for

Companies in England and Wales parting with an executive director by agreement, whether a founder, a hired executive or a director who is also a shareholder, and boards that want the departure done correctly in both capacities.

What matters in a director's settlement agreement

The two capacities and the documents that end each

The director's employment under the service agreement ends by the settlement agreement, which waives the employment claims under section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 with independent advice certified; the office of director ends by resignation (or removal by the shareholders under section 168 of the Companies Act 2006, which the settlement avoids), and the agreement should contain the resignation as a director and from all group offices, a power of attorney for the company to sign it if the director does not, and the director's confirmation that they have no claims against the company in their capacity as director; the agreement should also address the director's duties, which continue in respect of information and opportunities obtained in office after the office ends.

Resignation from the board and the filings

The agreement should set the date of the resignation, the company's obligation to file the termination of appointment at Companies House within the statutory period, the removal of the director from the register of directors and any register of persons with significant control where their holding changes, the updating of bank mandates, signatories and regulatory registrations, and the director's cooperation with each; a director who has resigned but remains on the register is still held out as a director and the filing is part of the exit rather than an afterthought.

Payments for loss of office and the shareholder approval question

Section 217 of the Companies Act 2006 requires a payment for loss of office to a director to be approved by the members unless it falls within an exception, and section 220 exempts payments made in good faith in discharge of an existing legal obligation, by way of damages for breach of such an obligation, by way of settlement or compromise of a claim arising in connection with the termination, or by way of pension; a settlement payment that compensates the director for claims they could bring, documented as such, usually falls within the exception, while an ex gratia payment beyond the contractual and claim-based entitlements needs approval, and the agreement should allocate the sums so that the position is clear and the board minutes record the basis; the note sets out the question so that the board decides it before signing.

Shares, options and the leaver provisions

Where the director holds shares or options, the shareholders' agreement, the articles and the option documents decide what happens on departure (good or bad leaver, the price, the transfer mechanics, the lapse or exercise of options), and the settlement agreement should either apply those provisions with the leaver category agreed (which is often the real negotiation) or record a separate agreement on the shares, with the transfer executed, the buy-back approved under section 694 of the Companies Act 2006 where the company buys, and the tax advised on by the accountants (the restricted securities rules in the Income Tax (Earnings and Pensions) Act 2003 and capital gains tax on the sale); a settlement that ends the employment and leaves the shares undetermined leaves the director as a shareholder with the rights that follow.

Guarantees, loans, insurance and the director's continuing exposure

The agreement should deal with any personal guarantees the director has given for the company's borrowing, leases or suppliers (the company's obligation to procure release or to indemnify until release), any loan the director has made to the company or the company to the director (repayment, set-off, the approval section 197 of the Companies Act 2006 required when it was made), the continuation of directors' and officers' insurance cover for claims arising from the period in office (run-off cover, with the company's obligation to maintain it stated), and the company's indemnity to the director for liabilities incurred in office so far as section 232 of the Act permits; a director who leaves on a guarantee the company does not address has not been released from the company at all.

The announcement, the covenants and the handover of the company

The agreement should attach the agreed internal and external announcement (to staff, customers, investors and, where the company's position requires it, the market), impose confidentiality and mutual non-derogatory terms within the limits the law sets (protected disclosures under section 43J of the Employment Rights Act 1996 and the Employment Rights Act 2025 limits on non-disclosure terms concerning harassment and discrimination on the timetable the regulations set), reaffirm or replace the restrictive covenants in the service agreement and the shareholders' agreement with the garden leave period credited, and set the handover: a period of cooperation, the transfer of relationships, access and documents, assistance with litigation or regulatory matters arising from the director's period in office, and the return of property; the tax on the payments follows sections 401 to 403 of the Income Tax (Earnings and Pensions) Act 2003 and the post-employment notice pay rules in section 402B, with the adviser's fees under section 413A and the accountants confirming the treatment.

What it costs

Settlement agreement, £795. Drafted for your situation, with a note on how to have the conversation. Three working days.

Settlement agreement including reasonable negotiation with the employee's adviser, £995. The agreement in three working days. The negotiation then runs until the agreement is signed or it becomes clear it will not settle. Reasonable negotiation means what, in my experience, amounts to the standard back and forth on a settlement agreement. If the employee or their adviser is being unreasonable, for example by conducting themselves unprofessionally or requiring a substantial rewrite that needs material further legal advice to you, I will flag it and we will discuss how best to proceed, which may involve further fixed-fee work. That would be unusual.

Buying online forms the engagement on payment. The scope is what the settlement agreements for employers page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke settlement agreement drafted for the exit you are dealing with
• Proper waiver of the relevant statutory claims, so the agreement does what you are paying for
• Advice on the tax treatment, including the £30,000 exemption and what falls outside it
• Confidentiality, non-derogatory statements and an agreed reference
• Reaffirmation or replacement of restrictive covenants, which is often the real value
• A short note on how to open the conversation and keep it without prejudice or protected
• One round of amendments after the employee's adviser responds

What is not included

• Advising the employee, which their own adviser must do independently for the agreement to be valid
• Tribunal representation if the matter does not settle
• Payroll processing of the settlement sums
• Handling the settlement payment, since I do not hold client money

Questions I am often asked

Does a settlement payment to a director need shareholder approval?

A payment compensating the director for claims arising from the termination, documented as such, usually falls within the exception; an ex gratia payment beyond that needs member approval. The agreement allocates the sums and the note sets out the question for the board.

The director is also a shareholder. Does the settlement deal with the shares?

It should, either by applying the leaver provisions with the category agreed or by a separate agreement on the shares, with the transfer and any buy-back executed. Ending the employment and leaving the shares undetermined leaves the director as a shareholder.

Can the director's insurance cover continue after they leave?

Directors' and officers' cover should be maintained for claims arising from the period in office, and the agreement states the company's obligation to maintain it. The company's indemnity for liabilities in office is given so far as the Companies Act permits.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Director service agreement

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.