UK Law and Practice Contributed by: Gareth Sykes, James Palmer, Isobel Hoyle and Hannah Whitney, Herbert Smith Freehills Kramer
directors against liability incurred towards a third party in the performance of their role. However, companies may not indemnify their directors for breaches of duties or negligence. Similarly, there are limitations to the extent to which a company can indemnify directors in circumstances where criminal proceedings are being brought against them. A company may also purchase D&O insurance for directors. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers At law, approval by shareholders is required for any director’s service contract for which the guaranteed term is longer than two years. Fail - ure to obtain approval makes the relevant con - tractual provision void and allows the company to terminate the service contract at any time by giving reasonable notice. A quoted company (that is, a company whose equity share capital is listed on the Official List in the UK, a company officially listed in an EEA state or admitted to dealing on NASDAQ or the NYSE) may not make any remuneration pay - ment to a director or former director unless that payment is in accordance with its latest remu - neration policy approved by shareholders (or the payment has been separately approved by shareholders). The directors’ remuneration poli - cy is a binding policy and must be approved by an ordinary resolution of shareholders at least once every three years. In addition, sharehold - ers are required to vote annually on a statement disclosing the directors’ remuneration for the previous year. This vote is indicative and does not have the effect of clawing back any payment that has already been made. However, if the directors’ remuneration report is not approved
by shareholders, the company is required to table a new remuneration policy the following year. For financial years beginning on or after 11 May 2025, these requirements no longer also apply to non-quoted traded companies, that is, companies which do not fall within the defini - tion of quoted company but with voting shares admitted to trading on a UK regulated market or an EU regulated market. 4.11 Disclosure of Payments to Directors/Officers The Governance Code also places additional reporting requirements on a company’s remu - neration committee in relation to the pay of directors and senior managers. The remunera - tion committee is required to provide a full description of its work in the annual report, including an explanation of the strategic ration - ale for remuneration decisions, the application of discretion to remuneration outcomes and details of shareholder and workforce engagement on the remuneration policy. A quoted company must also publish the pay difference between its CEO and its average UK employee. 5. Shareholders 5.1 Relationship Between Companies and Shareholders A shareholder’s relationship with the company in which they hold shares is a contractual one. Under the Companies Act, the articles of asso - ciation bind the company and its members to the same extent as if they were covenants on the part of the company and each member to observe the provisions. The articles of asso - ciation therefore constitute a form of contract between the company and its shareholders,
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