Are directors entitled to be paid?
A director is entitled to be paid only if s/he has a contractual right to payment. The contract could be in any form.
An obvious example would be a written service agreement between the director and the company which expressly provides for payment of a wage or salary, perhaps with other benefits. Subject to the company's articles, the board has power (as part of its general powers of management) to award service contracts to directors and others. Like all directors' powers, granting a service contract must be done bona fide for the benefit of the company.
Subject to the company's articles, the board has power (as part of its general powers of management) to award service contracts to directors and others. Note, however, that CA 2006, sec188 requires any fixed term contract for a duration longer than 2 years (which cannot be terminated by notice) to be approved by an ordinary resolution in general meeting. Like all directors' powers, granting a service contract must be done bona fide for the benefit of the company.
A contract giving rise to a right to payment could be created in other ways, e.g. under a shareholders' agreement to which the company and the director are parties, or orally, between the incoming director and the board or its representatives, or if the company has special provisions in its articles to that effect.
Both the Model Articles (for companies registered after 1.10.2009) and Table A (for companies registered before 1.10.2009) contain provisions regarding the remuneration of direcetors:
Model Articles provisions are:
19. (1) Directors may undertake any services for the company that the directors decide.
(2)Directors are entitled to such remuneration as the directors determine-
(a) for their services to the company as directors, and
(b) for any other service which they undertake for the company.
(3) Subject to the articles, a director's remuneration may-
(a) take any form, and
(b) include any arrangements in connection with the payment of a pension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of that director.
(4) Unless the directors decide otherwise, directors' remuneration accrues from day to day.
(5) Unless the directors decide otherwise, directors are not accountable to the company for any remuneration which they receive as directors or other officers or employees of the company's subsidiaries or of any other body corporate in which the company is interested.
Remuneration of directors
82. The directors shall be entitled to such remuneration as the company may by ordinary resolution determine and, unless the resolution provides otherwise, the remuneration shall be deemed to accrue from day to day.
Directors' expenses
83. The directors may be paid all travelling, hotel and other expenses properly incurred by them in connection with their attendance at meetings of directors or committees of directors or general meetings or separate meetings of the holders of any class of shares or of debentures of the company or otherwise in connection with the discharge of their duties.
Directors' appointments and interests
84. Subject to the provisions of the Act, the directors may appoint one or more of their number to the office of managing director or to any other executive office under the company and may enter into an agreement or arrangement with any director for his employment by the company or for the provision by him of any services outside the scope of the ordinary duties of a director. Any such appointment, agreement or arrangement may be made upon such terms as the directors determine and they may remunerate any such director for his services as they think fit. Any appointment of a director to an executive office shall terminate if he ceases to be a director but without prejudice to any claim to damages for breach of the contract of service between the director and the company. A managing director and a director holding any other executive office shall not be subject to retirement by rotation.
Directors' gratuities and pensions
87. The directors may provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any director whom has held but no longer holds any executive office or employment with the company or with any body corporate which is or has been a subsidiary of the company or a predecessor in business of the company or of any such subsidiary, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may (as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such benefit.
Conflict of interest
97. Where proposals are under consideration concerning the appointment of two or more directors to offices or Employment's with the company or any body corporate in which the company is interested the proposals may be divided and considered in relation to each directors separately and (provided he is not for another reason precluded from voting) each of the directors concerned shall be entitled to vote and be counted in the quorum in respect of each resolution except that concerning his own appointment.