Service agreement for a managing director

A managing director runs the company under authority delegated by the board, and the service agreement is where that authority and its limits are written down, along with the reporting the board needs, the pay the board sets, the notice and garden leave that protect the company when the managing director leaves, and the handover of a business that has been run by one person. Where the managing director is also a shareholder, the agreement has to work with the shareholders' agreement. I draft that agreement for the company for a fixed fee of £995, delivered in five working days.

Who this is for

Companies in England and Wales appointing a managing director or chief executive, boards formalising the position of a founder who runs the company, and investors who want the managing director's authority defined.

What matters in a managing director's service agreement

Authority, delegation and the limits the board sets

The agreement should state the authority delegated to the managing director (the day-to-day management of the company within the approved budget and business plan, the appointment and removal of staff below board level, contracts within stated limits) and the matters reserved to the board or the shareholders (the budget, borrowing, capital expenditure above a limit, acquisitions and disposals, senior appointments, litigation, anything in a shareholders' agreement's reserved matters), with the managing director's obligation to bring reserved matters to the board; a managing director's authority is what the board has given, and the agreement should make it a term rather than an assumption.

Reporting to the board and the chair

The agreement should set the reporting: board meetings at stated intervals with the managing director's report, management accounts, forecasts and key metrics in a stated form, the chair's role and the managing director's relationship with them, the obligation to inform the board promptly of material events (a major contract lost, a claim, a regulatory issue, a cash problem), and the directors' duties under sections 171 to 177 of the Companies Act 2006 which the managing director owes alongside every other director; a board that learns of a problem after the fact has a reporting clause that did not work.

Pay, bonus and the remuneration process

The salary, the bonus scheme (its targets, the discretion and its limits, the position on leaving), the benefits, any long-term incentive or equity, and the review process should be set by the board or a remuneration committee from which the managing director is excluded under the articles, with the terms recorded in the agreement and the bonus scheme in a document the board approves annually; the company must keep the agreement for inspection under section 228 of the Companies Act 2006, and a guaranteed term beyond two years needs shareholder approval under section 188.

Notice, garden leave and the protection of the business

Notice for a managing director is usually six months or more, with the statutory minimum under section 86 of the Employment Rights Act 1996 as the floor, a garden leave clause that lets the board remove the managing director from the business at once while continuing to pay them, a pay in lieu clause, and covenants at director width (non-solicitation and non-dealing with clients, non-poaching of staff and non-interference with suppliers, and a non-compete for a period measured in months in the company's field) with the garden leave period set off; the managing director knows everything, and the protection is garden leave first and covenants second.

The managing director as shareholder and the documents that interact

Where the managing director holds shares or options, the agreement should refer to the shareholders' agreement and the option documents, use the same good and bad leaver definitions, give covenants in both, and say which document governs which question, with the compulsory transfer provisions in the articles under section 33 of the Companies Act 2006; a founder managing director who is a majority shareholder has a service agreement the board approves and a shareholders' agreement the investors insisted on, and the two should not contradict each other.

Termination, succession and the handover of the company

The agreement should set the summary termination grounds, the resignation from the board and all offices on termination, the handover obligations (a stated period of cooperation, the transfer of relationships, access and knowledge, the introduction of a successor), the restrictions on what the managing director may say about the departure, and the position on payments for loss of office under section 217 of the Companies Act 2006; it should also provide for the board's right to appoint an interim or a successor during garden leave, because a company that has been run by one person needs the handover more than the covenant.

What it costs

Senior or director service agreement, £995. With properly drafted restrictive covenants and garden leave. Five working days.

Employment contract, £595. One template you can reuse for a grade of staff. Five working days.

Buying online forms the engagement on payment. The scope is what the employment contracts and handbooks 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 contract drafted for how you employ people
• Restrictive covenants drafted at a scope a court will uphold
• Confidentiality and intellectual property provisions that put ownership where it belongs
• The statutory particulars, so the document does the job section 1 of the Employment Rights Act 1996 requires it to do
• Flexibility clauses where you genuinely need them, drafted to survive challenge
• Core policies: disciplinary, grievance, sickness absence, equal opportunities, data protection and, increasingly, AI use
• One round of amendments

What is not included

• Acting for employees
• Employment tribunal representation
• Payroll, pensions auto-enrolment and tax
• Immigration and sponsor licence work
• Day to day HR handling, disciplinaries, grievances and redundancy processes

Questions I am often asked

Our founder runs the company with no service agreement. Does she need one?

She does, if she is paid to work: it sets her authority, the board's reserved matters, her pay process, notice, garden leave and covenants, and the company must keep a copy for inspection. Her shares are governed by the shareholders' agreement, which the service agreement is drafted to match.

Can the board remove a managing director immediately?

From the business, yes, under a garden leave clause, while notice runs and pay continues. From the board, by the shareholders under the Companies Act. Summary dismissal needs a ground the agreement states.

How long should a managing director's notice be?

Long enough to protect the business and hand over the role: six months is common, with garden leave. Anything guaranteeing more than two years needs shareholder approval.

Related guidance and services

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

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.