Irish Director Service Agreements: Why They Matter for Founders

Most Irish founders start out as directors without much thought for how the law actually classifies them. You appoint yourself to the board, you draw a salary, you sign contracts in the company name, and it all feels like a single role. It is not. Irish law treats a director as an office-holder first, and only treats them as an employee if there is a service agreement (or enough of the right features) that pulls them across that line. The director service agreement that founders sign is what documents that overlap, and getting it right matters for pay, for exit, and for what happens when things go wrong at board level.

This article explains where the office-holder line sits, why a written service agreement belongs in every founder's pack, and the clauses that most often trip up small Irish companies.

What is the difference between an office-holder and an employee?

A director is an office-holder by appointment, not by contract. The office exists in the company's constitution and the Companies Act 2014, and it continues to exist whether or not any particular person fills it. An employee, by contrast, works under a contract of service that sits separately from the office.

In practical terms, an executive director (full-time, salaried, working day-to-day in the business) is typically both an office-holder and an employee. A non-executive director who attends board meetings and receives fees is usually only an office-holder. The distinction drives several downstream issues:

• Employment-law rights (unfair dismissal, redundancy, family leave) attach only to employees.
• Fiduciary and statutory duties under sections 228 to 232 of the Companies Act 2014 attach to everyone who fills the office.
• Removal mechanics differ completely. An office is removed under the Companies Act and the constitution; an employment is terminated under the contract and the Unfair Dismissals Acts.

Shadow directors and de facto directors complicate this further, because they pick up the statutory duties without being formally appointed. For most seed-stage founders that is a risk to know about rather than act on, but it matters once investors come on board.

Why does a written service agreement actually matter?

A director service agreement sits alongside the appointment to the board. It documents the employment relationship: role, pay, hours, benefits, restrictive covenants, and termination mechanics. Without it, founder-directors usually default to an implied contract, which creates three problems.

First, pay and benefits become harder to justify in an audit or to an incoming investor. Second, restrictive covenants like non-compete, non-solicit, and IP assignment may not exist or may not be enforceable. Third, termination becomes a mess. Was the founder removed as a director, dismissed as an employee, or both? Who signed what, and when?

Investors expect these agreements in due diligence. Part of the reason is protection for the company, but there is also a founder agreement angle: the service agreement ties pay and duties to vesting, reserved matters, and the shareholders' agreement, so every document pulls in the same direction.

Author's tip: Get the service agreements signed before you raise. Putting them in during due diligence makes them look reactive, and investors will read every clause twice. Doing them up front signals a well-run board.

Which clauses really matter in a director service agreement?

A solid Irish director service agreement runs to 10 to 15 pages, but the clauses that do the work are as follows:

• Duties and time commitment. For founder-CEOs, "full working time and attention" with limited carve-outs for passive investments and advisory roles. For part-time executive directors, a clear fraction (for example, 2 days per week).
• Remuneration and benefits. Base salary, bonus mechanics, pension contributions, and benefits in kind. Keep the payroll side separate from director fees if the person also sits on committees or parent-company boards.
• Restrictive covenants. A 6 to 12 month post-termination non-compete, a non-solicit of staff and customers, and confidentiality obligations. See our guide on enforceable non-compete clauses for what actually survives Irish court scrutiny.
• IP assignment. Everything the director creates in the course of their role vests in the company. This is critical for engineering-founder CEOs.
• Termination and garden leave. Notice period, summary termination triggers, and a garden-leave clause that keeps the director on payroll but off the premises during notice.
• Leaver mechanics. Good leaver and bad leaver definitions that plug into the leaver provisions in the SHA and the founder vesting schedule.

What does the Companies Act add on top?

Two sections of the Companies Act 2014 sit directly on top of the service agreement.

Section 231 requires any director with a direct or indirect interest in a contract with the company to declare the nature of that interest at a board meeting. A director's own service agreement is the classic example. The declaration should be recorded in the minutes and, where the constitution requires it, the director should not vote on the approval. Our guide on director conflicts of interest sets out the practical mechanics, and the basic director's duties framework explains why it matters.

Section 232 makes breach of the statutory duties financially painful: a director who breaches the duties can be required to account to the company for any gain and indemnify it for any loss. That is why board approval of the service agreement, properly minuted in a board resolution, is not optional.

One more rule to flag. Any service contract that runs for more than five years and cannot be terminated by notice requires shareholder approval. Most founder service agreements avoid this by including a notice-on-termination clause, but check before you sign.

How does termination actually work: removal, dismissal, or both?

When a director-employee leaves, three different processes can all apply.

• Removal from office. An ordinary resolution of the members can remove a director under section 146, subject to extended notice. The constitution may add grounds, such as gross misconduct or incapacity, for director-level removal by the board itself.
• Dismissal from employment. The service agreement governs notice, summary dismissal triggers, and garden leave. The Unfair Dismissals Acts still apply if the director is also an employee.
• Buy-back of shares. The leaver provisions in the SHA determine what happens to unvested shares and the price at which vested shares can be bought back.

Running these in parallel without a plan is where most messy founder exits start. A clean service agreement, cross-referenced to the SHA and the constitution, makes each process separable. For the removal mechanics in particular, see our step-by-step on removing a director under the Companies Act.

Common mistakes small Irish companies make

A few patterns repeat across founder exits and investor due diligence:

• No written agreement at all. Everyone assumes "I am the founder, I am the company" until the company itself becomes an asset.
• Mixing shareholder, director, and employee issues. A dispute over dividends gets fought as an employment grievance, or vice versa. Keep the three hats separate in the paperwork.
• Copy-pasted US or UK templates. US at-will language does not work in Ireland. UK templates miss Companies Act 2014 references. We recommend that you use Irish-drafted documents.
• Ignoring investor director agreements. Non-executive directors appointed by investors need their own letter of appointment, not a full executive service agreement.

Where this leaves you

A director service agreement in Ireland does two jobs. It documents the employment relationship that sits alongside the office of director, and it plugs that relationship into the Companies Act framework every board already has to live with. Without it, founder pay is shakier, restrictive covenants are weaker, and exits are messier than they need to be.

The single most useful step is to put every executive director on a proper, board-approved, Companies Act 2014-aligned service agreement before the next fundraise. Open Forest drafts these as part of a standard founder pack, cross-referenced with the constitution and the SHA, so the paperwork actually holds together when it matters.