Letter of Appointment
The board of directors (“the Board”) of [Insert name of Company] (“Company”) is pleased to hear that you have accepted our offer to join the Board as an independent non-executive director.
By accepting this appointment, you agree that this letter is a contract for your independent services and is not a contract of employment, and you also confirm that you are not subject to any restrictions which prevent you from holding office as a non-executive director.
Private and Confidential
Please use headed paper of company, if available.
To: [Insert name of non-exec being appointed]
[Insert address line 1]
[Insert address line 2]
[Insert post code]
Dear [Insert Individual’s name],
- 2.1 Your appointment will be for an initial period commencing and ending on the dates set out in the Schedule to this agreement ("the Term").
- 2.2 Your appointment is subject to the Company's Articles of Association, as they may be changed from time to time (“the Articles”), including any provision which says that you have to stand for re-election by shareholders during your Term.
- 2.3 The Company may terminate your appointment straightaway if you have:
- (a) committed a significant breach of your responsibilities under this agreement;
- (b) been guilty of any fraud or dishonesty or acted in any manner which, in the Company's opinion, damages the reputation of the Company or is significantly damaging to the Company's interests;
- (c) been convicted of a criminal offence except for a road traffic offence for which no imprisonment is imposed;
- (d) been declared bankrupt or have made an arrangement with people you owe money to, to re-schedule or defer your debts;
- (e) been disqualified from acting as a director by law; or
- (f) not complied with the Company’s anti-corruption and bribery policy and procedures or the piece of legislation called the Bribery Act 2010.
When your Term comes to an end your appointment will end automatically, straightaway and without compensation. This applies whether your Term stops because the shareholders do not confirm your re-appointment, or you have to step down under the Articles, or because you are removed as a non-executive director because you do not comply with the terms of this agreement. At that time, if the Company asks you to, you will resign from your office as director of the Company and any other roles you hold in any of the Company's group companies. You must also immediately return to the Company all documents, or other property belonging to the Company which you possess, or have access to, and you can’t keep any copies of those documents.
- 3.1 You will be expected to provide as much of your time as is needed for the full performance of your responsibilities. Overall, we anticipate that you will spend a minimum of the number of days a month described in the Schedule on work for the Company. This will include attendance at monthly Board meetings, the AGM, meetings with other non-executive directors, meetings with shareholders, and meetings forming part of the Board evaluation process. In addition, you will need to consider all Company papers given to you before each meeting. Unless urgent and unavoidable circumstances prevent you from attending, it is expected that you will attend all the meetings outlined in this paragraph.
- 3.2 You may need to provide additional time to the Company in respect of preparation time and one-off matters which may arise.
- 3.3 By accepting this appointment, you agree that, taking into account all your other commitments, you are, and will continue to have, enough time to carry out your responsibilities effectively.
Also included in this document
4. Role and Duties
5. Fees and Expenses
6. Outside Interests
8. Insurance Protection
9. After the Term
11. The Law which Applies and Disputes
Tip Sheet for Corporate Structure
Creating a Company
If you incorporate a company you have the protection of “limited liability”, which means that you are not personally responsible for all the company’s losses. If you are trading as an individual you do not have this protection.
There are formalities involved in owning and transferring shares which you need to comply with. For example you need to follow “pre-emption” procedure in the Company Articles which give existing shareholders the right to bid for shares which another shareholder wants to sell. You also need to document share transfers and keep the company’s records (or “Statutory Books”) up to date. Share transfers also need to be accompanied by a “stock transfer form” to the receiver. If you don’t follow these procedures there will be uncertainty about your share ownership which could cost you when you seek investment or a sale.
If you grant options to someone to buy shares, there must be certainty as to when the options are to be exercised or to fall away. They must also be exercised at the latest if there is a sale of the company. If all this is not clear it will create problems for you with investors and buyers. Options also need to be structured carefully so that they are dealt with in a way that is tax-efficient for everybody – this normally needs legal advice.
Filing Records at Companies House
Companies have to comply with the Companies Act 2006 in the way that they file forms. There are many different types of form which must be filled in properly and delivered on time. If you don’t do this it can result in fines being paid by the directors or the company. It can also be expensive to put these kinds of mistakes right.
Directors have lots of duties. They must avoid conflicts between their own interests and the Company’s interests and they must take certain things into account when they are making their decisions. If Directors ignore these duties then it can result in transactions they are involved with for the Company being set aside. The Directors may even be liable personally for their failure to observe these duties.
When you share important information with others about the Company’s projects, plans or financial information, you should make sure that the information is properly protected by using a Confidentiality Agreement. This gives you a legal remedy if someone uses that information in a way which the agreement doesn’t allow. It will also give confidence to investors and shareholders that you are protecting information which is key to the company.
When you pay out “dividends” or profits to shareholders, there are rules you must comply with. Normally, you can only pay dividends out of genuine profits. If you don’t have those profits or you need to give capital back to shareholders and you still pay a dividend, you may be in trouble. Directors who authorise unlawful dividends may have to personally repay the money to the company.
Your Articles of Association
Company Articles are important. They are the operational rule-book for the company. So, they should be up-to-date and enable you to do everything that the company needs you to do. Issues to think about could include – if I want to sell the company can other minority shareholders be required to sell? Can they request that their shares are sold when other share sales are taking place? Do certain shareholders need particular controls which should be included in the Articles?
LawBite Legal Advice
LawBite professional advisors can help you straightaway with all of these issues and more. Just go to the the Legal Advice section and make your enquiry. We’ll get back to you within 24hrs with a meaningful response.
Clive Rich is a highly experienced entertainment and digital media lawyer, who has also successfully run digital businesses for companies such as Sony and Bertelsmann.
A qualified barrister, he has been a lawyer for almost 30 years and has drafted and crafted contracts for a broad spectrum of multi-nationals, major organisations and brands, including Yahoo, Apple, Napster, SanDisk, Myspace and the BBC.
He has also previously run his own legal practice, Rich Futures Ltd in association with the Top 30 UK law firm, Olswang LLP, representing a variety of technology companies and SMEs.
Clive is a qualified Mediator through the Centre for Effective Dispute Resolution (CEDR) and a qualified Arbitrator through the Central Institute of Arbitration (CIArb) in London.
As a negotiator, he is the author of “The Yes Book: the Art of Better Negotiation”, published by Random House in March 2013. Clive has also designed and successfully launched a negotiation App called “Close My Deal”, enabling people to understand the basis of successful negotiation and apply the skills to everyday scenarios. He has provided negotiating coaching and deal making services to a wide range of large organisations and SMEs. He has also been a board member of a number of digital SMEs.
Clive is a devoted father and husband, but when he is not spending time with his family, he likes to unwind by playing golf or watching a variety of sports (football, rugby, cricket). He's a lifelong Milwall FC fan... but don't hold that against him!
Step By Step Guide
Let’s walk you through how to go about drafting the Letter Appointing a Non-Executive Director, something that you need if you appoint a non-executive director to your company.
Follow these simple steps to your agreement into writing and ensure that you are adequately protected …
1. Set out the name and address of the non-executive director.
2. Insert the details of the company that the non-executive director is being appointed to.
3. You’ll then want to set out when the appointment starts, how long it is for and when it will end. This should include any reason why the company can end the non-executive director’s appointment straightaway without any notice – for those serious things that they non-executive does wrong. The company’s articles of association will also usually contain terms regarding the appointment of directors, which will apply to the non-executive director’s appointment. These should be referred to in this letter.
4. Next the letter sets out the time commitment that is expected from the non-executive director and what meetings etc they are expected to attend.
5. The letter of appointment then sets out the non-executive director’s role and duties. These include the director’s duties under the Companies Act 2006 and any other legislation that applies to directors of companies. The non-executive director has to tell the other board directors if the non-executive director has a conflict of interest in relation to anything that is being discussed by the board and, if they have a conflict in relation to any matter, they should not vote on decisions relating to that matter.
6. After this, the letter sets out what fees and expenses will be paid to the non-executive director.
7. Non-executive directors often have other interests, other than the company that they are being appointed to by this letter. The letter confirms this but says that the non-executive has to tell the chairman of the board of directors if there is any conflict of interest, whether this is an actual conflict or it may be a conflict.
8. As with any individual engaged in your business, you want to ensure that the non-executive director doesn’t disclose or use your confidential information. Make it very clear in this letter appointing the non-executive director what information can and cannot be shared…
9. Many companies have directors and officer’s liability insurance, which would cover the non-executive director. If you have D&O liability insurance, you should set this out in the letter.
10. The non-executive director will have access to confidential information about your business. In order to protect this, you should include a clause stopping the non-executive director from joining a competitor for a period of time after they leave your company. These restrictions are only enforceable to the extent that they don’t go any further than is reasonably necessary to protect the legitimate business interests of your company – its trade secrets and confidential information, business contacts and the stability of your workforce. If they do go further than is reasonably necessary to protect these interests, the clause won’t be enforceable so you need to think carefully about this clause and it must be well-drafted. If you have any questions about post-termination restrictions, please get in touch with a lawbrief who can advise you on these.
11. Just some last clauses that explain that the appointment letter contains all the terms that you’ve agreed with the non-executive director, that only the company and the non-executive director have rights under the letter, how to make changes to your agreement and that the law that applies to the letter.
12. Finally, this is where you get the option to try out fantastic e-signing feature at no extra charge and close the agreement in minutes … But remember to complete the details of the company that the non-executive director is being appointed to first.
When To Use this document:
This letter is used when you want to appoint a non-executive director to your company. A non-executive director is not part of the team that is in charge of the day-to-day management of the company. A non-executive director generally has a more strategic role and is involved in policy making and planning exercises. However, non-executive directors have the same legal obligations as an executive director. This letter sets out the terms and conditions on which the non-executive director is engaged. It should not be used for an executive director who should have an employment contract.