Appointing a director is a significant step for any business. This process involves preparing a document known as a Letter of Appointment. Crafting a well-structured Letter of Appointment isn’t only a formality but an important legal and administrative process that sets out the legal obligations and requirements of the director and the business.
As a business, you want to ensure that your Letter of Appointment adheres to legal standards while reflecting your company's values and aspirations. In this guide, we’ll walk you through the key elements of writing an effective Letter of Appointment tailored to the unique needs of small businesses appointing a company director.
What is a Letter of Appointment?
A Letter of Appointment is an official document issued by a company to an individual being offered a directorship position. It outlines the terms and conditions of the appointment, including the role, responsibilities, compensation and other important details regarding the director’s appointment.
The Letter of Appointment serves as a clear communication tool that ensures both parties are on the same page regarding the expectations of the role and the conditions of the appointment.
Is a Letter of Appointment legally binding?
Yes, a Letter of Appointment is legally binding once the director accepts it. It outlines the agreement between the company and the director, creating a contractual relationship. As such, it's important to ensure that the terms and conditions mentioned in the letter are accurate and complete.
In England, an Offer of Appointment, once accepted, forms a binding contract, and failure to adhere to its terms could lead to legal consequences. Therefore, seeking legal advice when creating such a letter is wise.
How to structure a Letter of Appointment
A well-structured Letter of Appointment not only demonstrates professionalism but also ensures clarity and legal compliance. Here are the sections to include in your Letter of Appointment:
- Length of term of appointment
- Time commitment
- Roles and duties
- Fees and expenses
- Outside interests
- Intellectual property
- Insurance protection
- Post-termination provisions
- General legal provisions
- Law and jurisdiction for disputes
1. Letter of Appointment
Clearly state that the document is a Letter of Appointment. In this section, you’ll need to include the company's name, address and registration details. You’ll then need to create a section for the appointed director's details, such as their name, address and job title.
Specify the start date of the director's role and the appointment duration, whether it's a fixed-term or an ongoing engagement.
3. Time commitment
Detail the expected working hours and any flexibility or additional time commitments required from the director. This section ensures alignment between the company's expectations and the director's availability.
4. Roles and duties
Outline the key responsibilities and duties the director will undertake. Be specific about the scope of their role, the department the director will oversee, and the director’s contribution to the company's overall goals.
5. Fees and expenses
If applicable, detail the director's compensation, including salary, bonuses, and any benefits. Additionally, clarify the company's policy on reimbursing expenses incurred in the course of their duties.
6. Outside interests
Highlight any conflicts of interest the director should disclose, ensuring transparency and adherence to corporate governance principles.
Emphasise the importance of maintaining the confidentiality of the company's sensitive information and trade secrets. This section helps protect the company's intellectual property, confidential information and business strategies.
8. Intellectual property
Specify the ownership of intellectual property developed during the director's tenure. This is particularly important if the director will be involved in creative or innovative projects.
9. Insurance protection
Discuss the company's insurance coverage and any liability protections that extend to the director in its official capacity.
10. Post-termination provisions
In this section, you’ll need to address what happens after the term of the appointment ends. This could include provisions related to renewal, termination or the possibility of transitioning to another role within the company. You may also include post-termination restrictions to avoid the director competing with your company after the role has been terminated.
11. General legal
Include a catch-all section that covers additional terms, such as the entire agreement clause, alterations to the letter and other standard boilerplate clauses.
Detail how formal communication between the company and the director should be conducted, including the designated addresses for sending notices.
13. Law and jurisdiction for disputes
Set out what law will apply, such as English law and in what courts any disputes will be heard such as English courts. You can also set out in the agreement guidance on how disputes will be resolved, whether through mediation, arbitration or the courts.
For the final section, you must provide spaces for the director's signature, date, and name in print. Ensure you leave a space for a company representative to sign and date.
To help you get started, we’ve created a free Letter of Appointment (for a Non-Exec Director) template that you can use. It contains each of the sections mentioned above and can be customised to fit the requirements of your business.
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Drafting a Letter of Appointment for a director in a private company is a nuanced process that requires careful attention to legal obligations, corporate values and the specifics of the director's role.
By following our approach, you can create a document that not only meets legal standards but also reflects your company’s ethos. Remember, a well-structured letter of appointment sets the foundation for a productive and harmonious working relationship between the director and your company, promoting transparency, accountability and success.
If you require further assistance drafting a Letter of Appointment or need guidance on other corporate governance or legal matters, speak with one of our expert lawyers. They’ll be able to answer any questions you might have regarding appointing a director in your company. To talk to a lawyer today, book a free 15 minute consultation or call us on 020 3808 8314.