A director's agreement is a necessary component of a director’s induction into a company. It lays out the basics of the director’s role within the company, and how they will be remunerated for it. Generally, the process for appointing directors is governed by the company's constitution or the replaceable rules in the Corporations Act 2001 (Cth) if no constitution exists.

The process for appointing directors generally proceeds as follows:

1. The company and the director reach in-principle agreement as to the terms of the agreement.
2. The director is appointed by the company.
3. The Director Agreement is signed.

You should ensure that you tailor it to meet the requirements of your circumstances.

This is not an employment agreement, as directors are not legally considered employees solely through their role as officers of the company. This means that the rights of directors are more akin to those of contractors. However, a director may also be an employee if they are actively involved in the operation of the company, such as those who hold c-suite positions. This is generally referred to as an executive director, and we recommend using a separate document for this arrangement, such as Lawpath’s Executive Agreement.

The duties are kept relatively high-level for two reasons. Firstly, duties may evolve as the company’s needs change. Secondly, both the Corporations Act 2001 and common law prescribe directors’ duties in extensive detail. In short, directors are required to:

• act in good faith and for a proper purpose;
• act with reasonable care and diligence;
• prevent insolvent trading;
• prevent an improper use of position or information;
• prevent conflicts of interest;
• fulfil all record keeping and reporting requirements; and
• fulfil statutory requirements in the areas of financial services, consumer law, the environment and workplace health and safety.

A director in a single-director company will naturally bear a large responsibility for meeting these duties. However, for multiple-director companies, this burden will be shared between directors and the company secretary.

This document will generally be signed on the company side by an authorised representative of the company. Ultimately, it is up to shareholders and other directors to hold a director accountable for their fulfilment of these duties.

If you require more information about the role of a director, we recommend you seek legal advice.

Who can be a director?

Not every director is appointed officially or with a director agreement. Legally, the concept of "director" includes the following:

• executive directors;
• non-executive directors;
• managing directors;
• alternate directors;
• nominee directors;
• de factor directors; and
• shadow directors.

What does the Director Agreement cover?

• the length of the appointment;
• terms of resignation or dismissal;
• the powers of the director;
• holiday leave;
• confidentiality; and
• non-solicit and non-compete provisions.