If you have served on the management board of a private limited company, you have probably signed or considered a board member agreement.
It is not always necessary, but in some circumstances it is strongly advisable.
How should you decide, and what should it cover?
Where do a board member's rights and duties come from?
They principally arise from law, but can also be regulated by agreements with the company. The articles and shareholder, supervisory board or management board resolutions can establish detailed working rules.
Where the sole shareholder is also the sole board member, a separate agreement is generally unnecessary.
In other cases, statutory rules may not adequately protect both parties.
An agreement is useful where there are multiple shareholders or board members, or the board includes people outside the ownership group.
It is also appropriate where a board member performs separate work under an employment contract. Two agreements make the roles and remuneration boundaries clear.
What is a board member agreement?
It records arrangements between the company and its management board member.
It is not an employment contract and is not governed by the Employment Contracts Act.
Can a board member also have an employment contract?
The law does not prevent a member from performing other work in the same company.
Both agreements may apply if the employment duties do not overlap with board duties.
For example, a dental clinic's board member can also work as a dentist. Management tasks are covered by the board agreement and clinical work by a separate employment contract.
Statutory duties
The board manages and represents the company. This brings both authority and responsibility. Board members have statutory authority to sign and transact on the company's behalf; owners and supervisory board members do not obtain that authority merely from their status.
Principal duties
- Manage and represent the company.
- Report to the general meeting or supervisory board on activities and financial circumstances.
- Organise accounting and timely preparation of the annual report.
- Ensure a safe working environment.
- Maintain the shareholder list.
- Convene shareholder meetings, set agendas and prepare draft resolutions.
- Act loyally, preserve trade secrets and avoid competing with the company.
Principal rights
Board members have broad decision-making discretion but do not automatically receive employee protections and social guarantees.
- Represent the company in transactions unless the articles require joint representation, including buying, selling, exchanging, acquiring or disposing of assets.
- Give work-related instructions and intervene in personnel management.
What should the agreement cover?
- Term of office, early removal and resignation.
- Work location and equipment.
- Working time, rest, leave and substitution.
- Remuneration, bonuses, compensation, reimbursements and payment arrangements, including cars and phones.
- Division of responsibilities between board members.
- Internal limits on representation and transactions.
- Confidentiality and the definition of confidential information.
- Non-compete duties during and after service and any compensation.
- Detailed liability arrangements.
How is an agreement concluded?
The supervisory board or shareholders first adopt a resolution establishing the terms, including remuneration, payment, benefits, leave and division of responsibilities.
They also designate a person authorised to sign with the board member.
Concluding, amending or terminating the agreement always requires a resolution of the superior body: the supervisory board if one exists, otherwise the shareholders.
Conclusion
Serving without a separate agreement does not itself create a problem, but an agreement may be highly advisable.
The more shareholders or board members are involved, and the more company assets and arrangements are entrusted to a member, the greater the need for a carefully considered agreement.
It is not mandatory, but its absence can cause misunderstandings and disputes.
We particularly recommend one where there are multiple members, members are not owners, responsibilities differ or a member also performs separate employment duties.
Magilex can draft an agreement or review one you have prepared.