A non-executive director agreement UK companies use is the letter of appointment that sets out the terms on which a non-executive director (NED) joins the board: their role, time commitment, fee, term, and obligations around confidentiality and conflicts. It is deliberately not an employment contract. A NED is an officer of the company appointed to bring independent oversight, not an employee, and the agreement is usually framed as a letter of appointment to make that distinction clear. It works alongside, rather than instead of, the general duties that the law places on every director. This guide explains what the agreement covers, how it interacts with the Companies Act 2006, and where the common pitfalls lie. It is general information, not legal advice.
Founders and boards reach for a NED agreement when they bring in an experienced outsider, often to satisfy investors, add credibility, or provide governance an early team lacks. Getting the paperwork right matters because a NED sits at the heart of the company's decision-making yet is not part of its day-to-day staff, and the terms need to reflect that unusual position. You can draft one from a vetted template, which we cover in the non-executive director agreement template guide.
What a NED agreement covers
A well-drafted letter of appointment typically deals with a consistent set of points.
The role and expectations. It describes what the NED is there to do: attend board and, often, committee meetings, contribute independent judgement, and provide oversight. It usually specifies an expected time commitment, for example a set number of days per year, so both sides have a realistic picture.
Term and termination. NED appointments are commonly for a fixed term, often subject to reappointment, and the letter sets out notice and the circumstances in which the appointment can end, including removal in line with the company's articles and the Companies Act.
Fees and expenses. A NED is usually paid a fee rather than a salary, and the letter states the amount, how it is paid, and what expenses are reimbursed. Some NEDs, particularly in early-stage companies, may take equity or options instead of or alongside a fee, which should be documented clearly.
Confidentiality and conflicts. Because a NED sees sensitive board material, the letter imposes confidentiality obligations and addresses conflicts of interest, dovetailing with the director's statutory duty to declare interests. This is why secure handling of board information matters so much, a theme we pick up in how to share board papers securely with directors.
Independence, indemnity and insurance. The letter often confirms the NED's independence, and deals with whether the company will indemnify the director and provide directors' and officers' insurance, subject to the limits the law allows.
Why it is a letter of appointment, not an employment contract
The single most important thing to understand about a NED agreement is what it is not. A non-executive director is an officer of the company, appointed to the board, not an employee working under the direction of the business. Framing the arrangement as a letter of appointment rather than an employment contract reflects that reality and avoids importing employment terms, such as employee benefits, notice regimes and unfair dismissal expectations, that do not fit an office-holder relationship.
The distinction is not merely cosmetic. If the documentation and the reality drift towards an employment relationship, the company can find itself with obligations it did not intend, and the NED's supposed independence, often the whole reason for the appointment, can be called into question. A NED's independence is precisely what gives their oversight value, so the paperwork should protect it rather than blur it. This is a genuinely different arrangement from a founder's or an employee's, and it should not be drafted by copying either; the founder side of the picture is covered in our founder-focused guides, but a NED letter is its own instrument.
How the Companies Act 2006 fits in
A NED, like every director, is subject to the general duties codified in the Companies Act 2006. These sit above and beyond whatever the letter of appointment says, and the agreement cannot contract out of them. The general duties, set out in Part 10, Chapter 2 of the Act, include the duty to act within powers, to promote the success of the company, to exercise independent judgement, to exercise reasonable care, skill and diligence, to avoid conflicts of interest, and to declare interests (see Sources). For a NED, whose entire function is independent judgement and oversight, these duties are not background detail; they are the job.
One duty deserves particular mention because it shapes how a NED must behave in the boardroom: the duty to declare an interest in a proposed transaction or arrangement, under section 177. If a NED has a direct or indirect interest in something the board is considering, they must declare it, and the letter of appointment usually reinforces this expectation. This is one reason board papers and minutes need careful handling: declarations of interest and the decisions that follow form part of the governance record, which is why the minutes and any resolution matter, a distinction we draw in board minutes versus board resolutions.
Indemnity is another area where the Act sets the outer limits. A company can indemnify a director against certain liabilities, but the Companies Act restricts the extent to which it can exempt a director from, or indemnify them against, liability for negligence, default, breach of duty or breach of trust in relation to the company. So while a letter of appointment can offer an indemnity, that indemnity operates subject to the Companies Act 2006, and cannot lawfully hand a director a blanket escape from their own wrongdoing towards the company. Any indemnity clause should be drafted with those statutory limits firmly in mind. This is general information, not legal advice, and indemnity wording in particular is worth a professional review.
How the record ties together, and how 99 Data Rooms helps
A NED does not operate in isolation. The appointment letter is the start; from there flow board packs the NED must read, board meetings they attend, and formal decisions recorded in board minutes and, where needed, a board resolution. Keeping that chain of documents consistent and controlled is part of running a credible board.
In 99 Data Rooms you can draft the letter of appointment from a vetted England and Wales template, then keep it and the wider governance record in one controlled place. The AI Legal Drafting feature is live, and it assembles the document from vetted clauses rather than inventing legal wording, so you start from a solid, current baseline; you can browse the template library on our site. Because indemnity and conflict provisions carry real weight, anything unusual is worth a solicitor's eye before you rely on it.
Once drafted, the letter can be signed in the browser through our e-signature feature, returning an executed document with an audit certificate. The board papers the NED then receives can be gated, tracked and revocable inside proper virtual data rooms, so a director who later steps down loses access cleanly, and the reading record supports good governance. The wider platform is in beta and improving fast, but drafting and signing a NED letter works today.
Draft your NED letter of appointment, for free
You can draft a non-executive director letter of appointment from vetted England and Wales clauses, then sign it and manage board papers in one place, inside 99 Data Rooms. The free tier is a real tier, not a trial: three rooms, twenty-five active links, forever, no card required. Start for free and assemble your NED agreement today.
Sources
- Directors' general duties (act within powers, promote success, independent judgement, care and skill, avoid conflicts, declare interests): Companies Act 2006, Part 10, Chapter 2, https://www.legislation.gov.uk/ukpga/2006/46/part/10/chapter/2
- Duty to declare interest in a proposed transaction or arrangement: Companies Act 2006, s.177, https://www.legislation.gov.uk/ukpga/2006/46/section/177
- Limits on indemnifying directors against liability to the company: Companies Act 2006, Part 10 (provisions protecting directors from liability), https://www.legislation.gov.uk/ukpga/2006/46/part/10/chapter/2
Is a non-executive director an employee?
No. A NED is an officer of the company appointed to the board, not an employee, which is why the arrangement is documented as a letter of appointment rather than an employment contract. Treating it as employment can undermine the NED's independence and import obligations that do not fit an office-holder. This is general information, not legal advice.
Does a NED owe the same duties as an executive director?
Yes. All directors, executive and non-executive, are subject to the general duties in the Companies Act 2006, including to exercise independent judgement, avoid conflicts, and declare interests under section 177 (see Sources). A NED cannot contract out of these through the letter of appointment.
Can a company indemnify a non-executive director?
A company can provide an indemnity, but it operates subject to the Companies Act 2006, which limits the extent to which a company can indemnify a director against liability for negligence, default, breach of duty or breach of trust owed to the company. Indemnity clauses should be drafted with those limits in mind and are worth professional review.
How is a NED usually paid?
A NED is generally paid a fee rather than a salary, sometimes with equity or options in early-stage companies, and expenses are typically reimbursed. The letter of appointment should state the fee, how it is paid, and what expenses are covered.
What documents sit alongside the NED agreement?
The letter of appointment leads into the board papers the NED reads, and the board minutes and any board resolution that record decisions. Keeping these consistent and controlled, and sharing board papers securely, supports the NED in meeting their duties; see how to share board papers securely.