What is an executive / director service agreement?
Is a director service agreement enforceable in South Africa?
“Applying these principles to the office of a managing director … the managing director constitutes a composite office. Not all of his actions in relation to company business are to be attributed to the powers as a director. As a manager, the managing director is a party to a contract of employment with the company. Accordingly, his or her position as a director must be distinguished from that of a manager.”
“A director of a company, when acting in that capacity, must exercise the powers and perform the functions of director … in good faith and for a proper purpose … in the best interests of the company … and … with the degree of care, skill and diligence that may reasonably be expected of a person … carrying out the same functions in relation to the company as those carried out by that director … and … having the general knowledge, skill and experience of that director.”
“For this reason, when a court determines the question of an employment relationship, it must work with three primary criteria: An employer’s right to supervision and control; Whether the employee forms an integral part of the organisation with the employer; and The extent to which the employee was economically dependent upon the employer.”
When you need a Executive / Director Service
- When you appoint or are appointed as an executive director — CEO, managing director, financial director or other C-suite role — and need a single contract that covers both the board seat and the salaried role, with duties, remuneration, restraint and exit clearly set out.
- When a shareholders agreement or investment (for example a private-equity or venture deal) entitles an investor or founder to a board seat plus an executive role, and the service terms must dovetail with the shareholders agreement, the Memorandum of Incorporation and any vesting or "good leaver / bad leaver" provisions.
- When a founder or owner-manager is formalising their position as the company grows or takes on outside investment, and informal "I am the boss" arrangements need to become a proper director service agreement that distinguishes the founder’s rights as shareholder, director and employee.
- When the company wants to protect itself on exit — building in what happens to the employment if the person is removed from the board under section 71, garden-leave, restraint of trade, return of company property and the handover of director duties (resignation as director, CIPC filings, account signatories).
- When remuneration, bonuses, share options or other benefits must be structured to comply with the Companies Act — in particular the section 66(9) requirement that director remuneration be authorised by a special resolution of the shareholders.
What a Executive / Director Service should contain
Dual capacity — director and employee
State expressly that the individual holds two distinct roles: a statutory office as a director (governed by the Companies Act and the MOI) and an employment relationship (governed by this contract and labour law). Make clear that the duties, remuneration and protections in the agreement attach to the employment, and that the directorship is held and lost under the Companies Act, not under the contract.
Statutory fiduciary duties (section 76) acknowledged, not waived
Record that the executive will comply with the section 76 duties — good faith, proper purpose, best interests of the company and the requisite care, skill and diligence — and the King IV governance principles where adopted. These duties are non-negotiable; the clause should reinforce them (and the consequences of breach), never purport to limit or exclude them.
Conflicts of interest and disclosure (section 75)
Require the executive to disclose any personal financial interest in a matter before the board and to recuse themselves as section 75 demands, and to declare outside directorships, related-party dealings and other business interests. This protects the company from voidable transactions and gives a clear contractual hook for discipline if disclosure rules are ignored.
Remuneration authorised under section 66(9)
Set out salary, bonuses, benefits, share incentives and any director’s fees — and address the Companies Act requirement that remuneration for services as a director be approved by a special resolution of the shareholders within the previous two years. Linking pay to the correct corporate approvals avoids fees later being challenged as unlawful and recoverable.
Link between board removal (section 71) and the employment
Deal head-on with what happens if the shareholders remove the person as a director by ordinary resolution under section 71 (an unalterable right that cannot be excluded). Specify whether loss of the board seat triggers termination of employment, on what notice and terms, and confirm that a fair labour process still applies — so a board-level removal does not create an unintended unfair-dismissal claim.
Resignation, handover and CIPC formalities on exit
Provide that on termination the executive will resign as a director, sign all documents to give effect to the CIPC director-change filing, hand over company property, board papers and passwords, and step down from bank signatories and authorities. Without this, a departing executive can remain on the CIPC register and retain authority long after leaving.
Restraint of trade, confidentiality and IP
Because executives hold the company’s most sensitive information and relationships, include a reasonable restraint of trade (limited in scope, area and time so it is enforceable on South African principles), robust confidentiality obligations that survive termination, and assignment to the company of intellectual property created in the role.
Notice, garden leave and termination for cause
Set notice periods proportionate to seniority, a garden-leave right (keeping the executive away from clients and systems during notice), and clear grounds for summary termination for serious misconduct, breach of fiduciary duty or delinquency — while preserving the fair procedure that labour law requires for an employee.
Executive director service agreement vs ordinary employment contract in South Africa
| Feature | Director service agreement (executive director) | Ordinary employment contract (non-director employee) |
|---|---|---|
| Legal capacity | Composite office — director and employee | Employee only |
| Governing framework | Companies Act 71 of 2008 + labour law + contract | Labour law (LRA, BCEA) + contract |
| Fiduciary duties | Statutory s 76 duties, non-waivable | General duty of good faith; no s 76 duties |
| Conflicts of interest | Must disclose under s 75 and recuse | No statutory board-disclosure regime |
| Removal from role | Shareholders may remove from board by ordinary resolution (s 71) | Only dismissal, which must be substantively and procedurally fair |
| Remuneration approval | Director’s remuneration needs special resolution (s 66(9)) | Set by the employer; no shareholder resolution required |
| On exit | Must also resign as director + CIPC filing | Simply leaves employment |
Common South African pitfalls
- Assuming removal from the board ends the employment. Section 71 lets shareholders vote a director off the board by ordinary resolution, but the executive remains an employee. Treating the board removal as an automatic dismissal — without a fair process — can hand the person a claim for unfair dismissal, exactly the dual-capacity risk illustrated in Amazwi v Turnbull.
- Trying to contract out of the Companies Act. Clauses that purport to make a director "irremovable", to waive the section 76 fiduciary duties, or to override the section 75 disclosure rules are unenforceable. The statutory shareholder right of removal under section 71 is unalterable and cannot be excluded by the MOI, a shareholders agreement or the service contract.
- Ignoring the section 66(9) special-resolution requirement for director remuneration. Where pay is for services as a director, it must be authorised by a special resolution of the shareholders within the previous two years. Paying director’s fees without that authority can render the payments unlawful and recoverable from the director by the company.
- No conflict-of-interest and disclosure clause. If the executive director has an undisclosed personal financial interest in a board matter, section 75 can render the resulting transaction void unless it is ratified by the shareholders or validated by a court — and the company loses a clear contractual basis to discipline the director.
- Mis-classifying the relationship. Labelling someone a "director" or "independent consultant" to dodge labour-law protection fails the reality test (SITA v CCMA; SABC v McKenzie). If the person is in substance controlled by and integrated into the company, the CCMA or Labour Court will treat them as an employee regardless of the title on the contract.
- Forgetting the exit mechanics. A service agreement that does not require the executive to resign as a director, sign the CIPC change documents and step down from bank signatories on termination can leave a departed executive still on the public register and still wielding authority — a serious governance and liability gap.
Frequently asked questions
Is an executive director an employee in South Africa?
Usually yes. An executive director (such as a CEO, managing director or financial director) holds a "composite office" — they are both a statutory director and an employee. In Amazwi Power Products v Turnbull [2008] ZALAC 8 the Labour Appeal Court explained that a director "is thus not an employee of a company, although he or she can be an employee in addition to holding the independent office as a director", and that a managing director, "as a manager … is a party to a contract of employment with the company". A non-executive director who only attends board meetings is generally not an employee.
Can a director service agreement override the Companies Act?
No. The agreement is enforceable as an employment contract, but it cannot waive or override the Companies Act 71 of 2008. It cannot exclude the section 76 fiduciary duties, the section 75 conflict-disclosure rules, or the shareholders’ unalterable right under section 71 to remove a director by ordinary resolution. The contract operates around the statute, not over it.
If shareholders remove me as a director under section 71, does my employment end too?
Not automatically. Section 71 allows shareholders to remove you from the board by ordinary resolution, but if you are also an employee, your employment continues until it is lawfully ended. The company must still follow a fair labour process. A well-drafted director service agreement should spell out whether and how loss of the board seat ends the employment, and on what terms.
How is an executive director’s remuneration approved?
Remuneration for services rendered as a director must be authorised by a special resolution of the shareholders, approved within the previous two years, under section 66(9) of the Companies Act. Salary for the person’s separate executive (employee) role is set by the company, but the directorship element of the pay needs the correct shareholder approval, or it can later be challenged and recovered.
What is the difference between an executive and a non-executive director?
An executive director works full-time in the business and is an employee as well as a board member, so they need a service (employment) agreement. A non-executive director is not employed — they sit on the board, attend meetings and exercise oversight — and are usually engaged on a letter of appointment with director’s fees, not a service agreement. Both still owe the section 76 fiduciary duties.
What fiduciary duties does an executive director owe?
Under section 76 of the Companies Act, a director must act in good faith and for a proper purpose, in the best interests of the company, and with the degree of care, skill and diligence reasonably expected of someone with that director’s knowledge and experience. They must also disclose personal financial interests under section 75. These duties are statutory and cannot be waived by the service agreement.
Can an executive director be summarily dismissed for breach of fiduciary duty?
A serious breach of the section 76 fiduciary duties — for example self-dealing or an undisclosed conflict under section 75 — can justify summary termination of the employment for cause, and may support a delinquency declaration against the director. But because the person is still an employee, the company must follow a substantively and procedurally fair process; the breach is a strong ground, not a free pass around labour law.
Do I need a separate restraint of trade for an executive director?
A restraint is usually built into the director service agreement itself rather than signed separately. Executives have the deepest access to clients, strategy and confidential information, so a reasonable restraint — limited in scope, geographic area and duration — is important and is enforceable under South African law if it protects a legitimate interest and is not unreasonably wide.
Sources & authority
- Amazwi Power Products (Pty) Ltd v Turnbull (JA 14/07) [2008] ZALAC 8; (2008) 29 ILJ 2554 (LAC); [2008] 9 BLLR 817 (LAC) (20 June 2008)
- State Information Technology Agency (SITA) (Pty) Ltd v CCMA and Others (JA 16/2006) [2008] ZALAC 1; (2008) 29 ILJ 2234 (LAC) (20 March 2008)
- South African Broadcasting Corporation v McKenzie (CA8/98) [1998] ZALAC 13; [1999] 1 BLLR 1 (LAC) (15 October 1998)
- Companies Act 71 of 2008 — s 71 (removal of directors), s 75 (personal financial interest), s 76 (standards of conduct), s 66(9) (remuneration)
This guide is general information, not legal advice. It reflects the law as at June 2026.