When Do I Need A Director's Service Agreement? (2026 Updated)

As your business grows, you’ll often find yourself wearing two hats at once: owner and operator.

And if your business is a company, there’s a good chance you (or someone in your leadership team) is also a director. That’s where things can get tricky. Directors have legal duties under Australian law, but they may also be working day-to-day in the business in a very “employee-like” way.

A Director’s Service Agreement helps you clearly set out what the director is being engaged to do, how they’ll be paid, and what happens if the relationship changes or ends. In 2026, with more businesses scaling quickly, raising capital earlier, and operating across multiple states (or even internationally), having this agreement in place can save you from misunderstandings that become expensive disputes later.

Below, we’ll walk you through what a Director’s Service Agreement is, when you’ll usually need one, what it should cover, and how it fits with your other core company documents.

What Is A Director’s Service Agreement?

A Director’s Service Agreement is a contract between a company and a director that sets out the terms on which the director provides services to the company.

It’s different from simply appointing someone as a director. Appointment makes someone part of the company’s governance (meaning they help oversee strategy, compliance, and major decisions). A service agreement deals with the commercial relationship between the director and the company, especially where the director is:

• being paid a salary or director fees
• working regular hours
• taking on specific responsibilities (like CEO duties)
• handling confidential information and company IP
• in a position to materially impact the business if they leave

In practice, it’s a way to put in writing the expectations on both sides, so you’re not relying on assumptions.

Many companies use a Director’s Service Agreement when a director is actively involved in operations, is paid, or is part of a founder or executive team.

Is It The Same As An Employment Contract?

Not always.

Some directors are also employees (for example, a Managing Director or CEO). Others are “non-executive directors” who attend board meetings, provide oversight, and are paid director fees, but don’t work in the business day-to-day.

Depending on the setup, the agreement might look more like:

• an executive employment agreement (if they’re a director + employee)
• a contractor-style services agreement (less common for directors, but possible)
• a pure director services/fees agreement (common for non-executive directors)

If the director is genuinely an employee, you may also need a separate Employment Contract (or ensure the director service agreement properly includes employment-style terms and complies with workplace laws).

When Do You Need A Director’s Service Agreement?

There’s no single rule that says every company must have a Director’s Service Agreement. But there are several situations where it’s strongly recommended (and in many cases, practically essential).

1. When A Director Is Being Paid (Salary Or Director Fees)

If money is changing hands, you want the “how and why” documented.

A clear agreement can spell out:

• how fees are calculated
• when payments are made
• whether superannuation is included or additional
• reimbursement of expenses (and approval processes)
• what happens if the director stops providing services

This is especially important if your company is moving from informal founder arrangements into a more structured setup (for example, after investment).

2. When The Director Is Also Running The Business Day-To-Day

Many early-stage companies have directors who are effectively acting as:

• CEO / Managing Director
• Head of Sales
• Operations lead
• Product lead

When someone is that embedded in operations, there are more “moving parts” to manage-like KPIs, reporting lines, approval limits, and what happens if performance isn’t meeting expectations.

A Director’s Service Agreement gives you a practical framework to manage that relationship professionally (even if you’re friends or co-founders).

3. When You Have Multiple Founders Or Shareholders

If your company has more than one owner, it’s worth getting very clear on who does what.

It’s common for co-founders to assume everything will stay equal forever-until the business grows, workloads shift, or personal circumstances change. When that happens, director roles and remuneration can become a point of tension.

A Director’s Service Agreement pairs naturally with a Shareholders Agreement, because the shareholders agreement usually deals with ownership and decision-making at a high level, while the director agreement deals with the director’s day-to-day engagement and expectations.

4. When You’re Raising Capital Or Bringing In An Investor

Investors (including sophisticated angel investors and VCs) often expect your company’s key relationships to be properly documented-especially where founders or directors are being paid or have access to sensitive assets.

If you’re fundraising, a Director’s Service Agreement can help show that:

• roles are clearly defined
• the company owns its IP (where appropriate)
• confidentiality obligations are locked in
• there are reasonable restraints to protect goodwill (where appropriate and enforceable)

It can also make due diligence smoother because the investor isn’t trying to “guess” how your leadership team is structured.

5. When You Want A Clear Exit Path (Resignation, Removal, Or Dispute)

Directors can resign, and in some circumstances can be removed. But the legal and practical consequences can vary depending on the constitution, shareholder arrangements, and whether the person is also an employee.

A strong agreement can help you answer questions like:

• How much notice must the director give?
• Can the company place them on garden leave?
• What happens to confidential information and company property?
• Are there post-engagement restraints (if appropriate)?

Even if you never need to rely on these clauses, having them agreed upfront can prevent messy, emotional negotiations later.

What Should A Director’s Service Agreement Cover?

Every company is different, but in 2026 most well-drafted Director’s Service Agreements will cover a few core areas.

Role, Duties, And Time Commitment

This section should clearly describe what the director is expected to do. For example:

• board and governance responsibilities
• day-to-day operational duties (if they’re an executive director)
• who they report to (and who reports to them)
• expected working days/hours or minimum time commitment

Clarity here helps avoid the classic problem of “we thought you were handling that”.

Remuneration And Benefits

This is usually where disputes start if the agreement is vague.

Your agreement may deal with:

• director fees vs salary (and how they’re reviewed)
• bonuses or incentive structures (if applicable)
• expense reimbursements
• company benefits (car allowance, phone, etc.)

If the director is an employee, the terms should also align with workplace requirements, including minimum standards and relevant award considerations where applicable.

Confidentiality And Company Information

Directors have access to sensitive information-commercial strategy, financials, customer lists, investor discussions, and more.

Your agreement should set clear confidentiality obligations during and after the engagement, and also deal with practical issues like returning documents, devices, and access credentials.

Intellectual Property (IP) Ownership

This is one of the most important (and most overlooked) parts of a director agreement for startups.

If a director is creating materials for the business-like product designs, software, content, branding, sales playbooks, or internal systems-you want to be clear about what IP is owned by the company.

This is particularly crucial before fundraising, a sale, or a restructure.

Termination, Suspension, And Notice

Even if you’re optimistic, it’s smart to plan for different scenarios, such as:

• the director resigning
• the company ending the engagement (where permitted)
• suspension during an investigation (where relevant)
• serious misconduct or breach of duties

It’s also common to include practical “handover” obligations, so the business isn’t left scrambling if a key director exits suddenly.

Restraints (Non-Compete / Non-Solicit) Where Appropriate

Restraint clauses can be useful, but they need to be drafted carefully to be enforceable and appropriate to the role.

A typical director agreement may include restraints to stop a departing director from:

• soliciting your staff or contractors
• poaching key clients
• using confidential information to compete unfairly

The key is that the restraint has to be reasonable in scope, time, and geography, and genuinely protect a legitimate business interest.

How Does It Fit With Your Company Constitution And Other Documents?

A Director’s Service Agreement doesn’t exist in isolation. In a well-run company, it fits into a wider “legal toolkit” that keeps governance and operations aligned.

Your Company Constitution

Your constitution sets the rules for how the company is governed-things like appointing or removing directors, how meetings work, and decision-making requirements.

It’s common for companies to adopt (or upgrade) a Company Constitution as they grow, especially if they bring in investors, issue new shares, or want clearer governance rules.

Your Director’s Service Agreement should not conflict with the constitution. If it does, it can create uncertainty (and disputes) about which document controls what.

Your Shareholders Agreement

Where a constitution is often more procedural, a shareholders agreement is usually more commercial-covering control, founder commitments, transfer restrictions, deadlocks, and exits.

If your shareholders agreement includes founder roles, vesting, or “good leaver / bad leaver” concepts, your Director’s Service Agreement should be consistent with those settings.

How Directors Sign Documents (Section 127)

In Australia, how company documents are signed can matter, especially when you’re dealing with banks, landlords, investors, or major customers.

If your director agreement involves authority to sign certain documents (or binds the company in particular ways), you should also understand the mechanics of execution under section 127 of the Corporations Act.

This doesn’t mean every director can sign anything at any time-but it’s a good reminder that governance, authority, and contracting should all line up.

Employment, Contractor, And Policy Documents

If a director is also an employee, you’ll often need your employment documentation to align properly (including leave, termination, confidentiality, and restraints).

And if your company is collecting personal information (for example, through a website, onboarding platform, or marketing list), you’ll usually also want a fit-for-purpose Privacy Policy-because governance isn’t just internal; it’s also about how the business manages compliance and risk externally.

Common Mistakes We See (And How To Avoid Them)

A Director’s Service Agreement is meant to reduce risk. But if it’s rushed, copied from a generic template, or not aligned with your company structure, it can create new problems.

Mistake 1: Treating A Director Arrangement As “Just A Handshake Deal”

Handshake deals feel easy-until they aren’t.

When there’s no written agreement, you can end up with disputes over pay, expectations, ownership of work, and whether the director can leave immediately (or must give notice).

Getting it documented early is usually far cheaper than dealing with a dispute later.

Mistake 2: Confusing “Director” With “Shareholder”

This is incredibly common, especially for founders.

A director manages and governs the company. A shareholder owns shares in it. Sometimes the same person is both, but legally they are different roles with different rights and obligations.

If you want a straightforward explanation of the distinction, Director vs Shareholder is a helpful baseline to keep everyone on the same page.

Mistake 3: Not Dealing With IP Properly

Startups and growing companies often discover IP gaps during fundraising or acquisition talks.

If a director has created valuable assets (like software, designs, or key documentation) and the paperwork doesn’t clearly assign ownership to the company, it can slow a deal down or reduce valuation.

Even outside of fundraising, it can cause internal disputes if a director leaves and claims they “own” what they built.

Mistake 4: Overreaching On Restraints

It’s understandable to want broad restraints. But overly aggressive restraints can be difficult to enforce, and may not achieve what you actually need.

A tailored agreement focuses on protecting legitimate interests (like confidential information, customer relationships, and key staff), without going further than necessary.

Mistake 5: Not Updating Agreements As The Business Evolves

In many companies, a director’s role changes quickly-especially across a 6–18 month growth period.

If the agreement still reflects an early-stage role (or early-stage pay), it may stop matching reality. A quick review at key milestones (fundraising, rapid hiring, expansion, restructure) can prevent misalignment from building up.

Key Takeaways

• A Director’s Service Agreement sets out the commercial terms on which a director provides services to the company, especially where they’re paid or operationally involved.
• You’ll often want one when a director is also acting as an executive (like CEO), when there are multiple founders, or when you’re raising capital and need clearer governance.
• Strong agreements usually cover duties, remuneration, confidentiality, IP ownership, termination/notice, and (where appropriate) reasonable post-exit restraints.
• Your Director’s Service Agreement should align with your constitution and shareholder arrangements so you don’t end up with conflicting rules or unclear authority.
• Common pitfalls include relying on informal arrangements, mixing up director vs shareholder roles, and leaving IP ownership unclear until it becomes a problem.

If you’d like help putting a Director’s Service Agreement in place (or reviewing what you’re currently using), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.