Director Service Agreement (Kenya)

A Director Service Agreement in Kenya records the obligations, timelines and payment owed between the client and the service provider.

Sections 142 to 145 of the Companies Act No. 17 of 2015 codify the general duties of directors of Kenyan companies. Section 142 imposes the duty to act within the director's powers as conferred by the company's constitution filed with the Business Registration Service (BRS). Section 143 requires every director to act in the way they consider, in good faith, most likely to promote the success of the company for the benefit of its members as a whole. Section 144 obliges directors to exercise independent judgment. Section 145 requires directors to exercise reasonable care, skill, and diligence — assessed by reference to the general knowledge, skill, and experience reasonably expected of a person carrying out the functions of a director, and the specific knowledge, skill, and experience that the individual director actually has.

Section 146 of the Companies Act No. 17 of 2015 prohibits directors from exploiting for personal benefit any property, information, or opportunity belonging to the company — a statutory codification of the fiduciary duty of loyalty applicable to Kenyan directors since the common law. The High Court of Kenya (Commercial Division) has consistently applied these duties to hold directors personally liable for breach of fiduciary duty, applying the principles established in English decisions such as Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 as part of the received common law.

The distinction between an executive director and a non-executive director is critical in Kenya. An executive director is both a director and an employee; a Director Service Agreement is the appropriate document for this category. A non-executive director is appointed to the board but is not an employee — their terms of appointment are typically set out in a letter of appointment, not a service agreement. The Employment and Labour Relations Court (ELRC), established under Article 162(2)(a) of the Constitution of Kenya 2010, has exclusive jurisdiction over employment disputes and applies both the Employment Act No. 11 of 2007 and the Companies Act No. 17 of 2015 when adjudicating claims by executive directors.

Directors of Kenyan companies are subject to fiduciary disclosure obligations under the Companies Act No. 17 of 2015. Section 148 requires every director to disclose to the Board any interest — whether direct or indirect — in a proposed or existing transaction or arrangement with the company. The disclosure must be made at the Board meeting at which the conflicted matter is considered, or as soon as practicable after the director becomes aware of the conflict. Section 193 of the Companies Act further regulates restrictive covenants and non-compete obligations in director service agreements, requiring that such covenants be reasonable in scope, duration, and geographic territory to be enforceable.

Directors and Officers (D&O) liability insurance is increasingly standard for Kenyan companies, particularly those dealing with institutional shareholders, international joint venture partners, or public sector contracts. The Insurance Regulatory Authority (IRA) supervises D&O insurance products issued in Kenya. A Director Service Agreement should expressly require the company to maintain D&O insurance of an agreed coverage amount throughout the director's tenure and for a specified run-off period after departure.

A Kenya Director Service Agreement is required whenever a company incorporated under the Companies Act No. 17 of 2015 appoints an executive director who will also be employed in an executive management role — and several specific circumstances make a formal written agreement essential.

At appointment of a founding executive director: When a newly incorporated company — registered via the Business Registration Service (BRS) through the eCitizen portal — appoints its first executive directors, a Director Service Agreement should be signed concurrently. Founding directors often serve in dual capacity as shareholders and executives; the agreement defines the remuneration and duties that the company owes to the director in the director's employment capacity, separate from the director's rights as a shareholder under any Shareholders Agreement.

When restructuring board roles and remuneration: A growing Kenyan company that transitions from informal founder management to a professionally structured board must document executive director appointments formally. The Companies Act No. 17 of 2015 requires that directors' service contracts exceeding two years be approved by ordinary resolution of the members under Section 188. Failure to comply makes the long-term contract voidable at the company's election and may expose the Board to liability.

When a company receives institutional investment: Angel investors, venture capital funds, or private equity firms entering a Kenyan company will require all executive directors to have formal, written Director Service Agreements as a condition of investment. Investors need clarity on remuneration, notice periods, exit mechanisms, non-compete obligations, and intellectual property assignment before committing capital.

When appointing a foreign national or expatriate director: A company appointing a non-citizen director to an executive role must comply with the Kenya Citizens and Foreign Nationals Management Service Act and the terms of the director's work permit. The Director Service Agreement must be consistent with the permit conditions and should address the company's obligations regarding permit renewal, travel, accommodation, and repatriation.

When post-termination protections are required: A Director Service Agreement is the appropriate instrument for imposing enforceable non-compete, non-solicitation, and confidentiality obligations on a departing executive director. Without a written agreement incorporating these clauses, a company has limited contractual recourse against a director who joins a competitor or solicits clients after departure. The Law Society of Kenya (LSK) recommends that all executive director appointments be documented in a formal service agreement before the director commences duties.

When conflicts of interest management is needed: Companies with directors who hold positions in related or competing businesses — common in Kenyan conglomerate structures and family business groups — require a formal Director Service Agreement to document the disclosure protocol, Board approval requirements, and restrictions on participation in conflicted decisions, in compliance with Sections 146 to 148 of the Companies Act No. 17 of 2015.

A valid and enforceable Kenya Director Service Agreement under the Companies Act No. 17 of 2015 and the Employment Act No. 11 of 2007 must contain the following essential elements.

Appointment and Term: Full legal names of the company (with BRS Registration Number) and the director; the date of appointment; whether the appointment is for a fixed term (requiring member approval for terms exceeding two years under Section 188 of the Companies Act No. 17 of 2015) or is open-ended; and the director's title and executive role. The agreement should clarify that the director holds both a statutory office as director and an employment relationship as an employee.

Duties and Responsibilities: A clear description of the director's executive duties and their responsibilities on the Board, including the obligations under Sections 142 to 145 of the Companies Act No. 17 of 2015 — the duty to act within powers, the duty to promote the success of the company, the duty to exercise independent judgment, and the duty to exercise reasonable care, skill, and diligence. The agreement should also address reporting obligations, participation in Board sub-committees, and representation of the company externally.

Remuneration and Benefits: Basic monthly salary in Kenya Shillings (KES), director's fees (if separate from salary), performance bonuses and the criteria for their calculation, share options or equity incentive arrangements, allowances (housing, transport, medical), and pension contributions to the National Social Security Fund (NSSF) under the National Social Security Fund Act No. 45 of 2013. The agreement must also reflect mandatory statutory deductions: PAYE under the Income Tax Act (Cap. 470), SHIF at 2.75% of gross salary under the Social Health Insurance Act No. 16 of 2024, and Housing Levy at 1.5% under the Affordable Housing Act.

Conflicts of Interest: A mandatory declaration protocol requiring the director to disclose to the Board any actual or potential conflict of interest in accordance with Section 148 of the Companies Act No. 17 of 2015. The agreement should specify which conflicts are pre-approved (permitted interests) and which require specific Board approval at each instance. Directors may not vote on matters in which they have a material interest, unless the constitution or the agreement expressly permits it.

Directors and Officers Insurance: The company's obligation to maintain Directors and Officers (D&O) liability insurance of an agreed coverage amount, issued by an insurer licenced by the Insurance Regulatory Authority (IRA), throughout the director's tenure and for a run-off period of not less than 3 years after the director ceases to hold office. D&O insurance covers claims arising from alleged wrongful acts committed in the director's capacity as a director or officer of the company.

Intellectual Property Assignment: All intellectual property — including inventions, designs, software, databases, and trade secrets — created by the director in the course of their duties shall vest in and be assigned to the company immediately upon creation. The director irrevocably waives any moral rights to the extent permitted by Kenyan law.

Confidentiality: The director's obligation to keep confidential all proprietary information and trade secrets of the company during and after the term of the agreement, consistent with the Data Protection Act No. 24 of 2019 administered by the Office of the Data Protection Commissioner (ODPC).

Restrictive Covenants: Non-compete obligations enforceable under Section 193 of the Companies Act No. 17 of 2015, restricting the director from working for or holding interests in competing businesses for a specified period (typically 12 to 24 months) in a defined territory (typically Kenya and East Africa) after departure. Non-solicitation of key employees, clients, and suppliers for a similar period. Courts in Kenya assess reasonableness by reference to the director's seniority, the company's legitimate business interests, and the geographic scope of the company's actual operations.

Termination: Notice period (not less than the statutory minimum of 28 days under Section 35 of the Employment Act No. 11 of 2007 for monthly-paid employees, but typically 3 to 6 months for executive directors); grounds for summary termination; the director's obligation to resign from the Board on termination of employment; and any post-termination garden leave provisions.

Governing Law and Dispute Resolution: The agreement shall be governed by the laws of Kenya. The Employment and Labour Relations Court (ELRC) has exclusive jurisdiction over employment-related disputes. For disputes that are strictly contractual and not employment-related, parties may elect arbitration before the Nairobi Centre for International Arbitration (NCIA) under the Arbitration Act No. 4 of 1995 (revised 2022).

Forms-legal.com provides this Kenya Director Service Agreement template as a practical foundation for companies and executive directors negotiating formal appointment terms in compliance with Kenyan corporate and employment law.