Every Estonian private limited company (OÜ) is managed and represented by its management board (juhatus). The board member is appointed by a shareholder resolution and entered in the commercial register — but the appointment says nothing about the terms on which the person works: whether they are paid, for how long, what happens when they leave, what they may not do. Those terms belong in a written service agreement between the company and the board member. This guide explains why the agreement matters and what it contains. We draft it as an add-on to a ready-made company or a new company formation.
The guide is general information, not legal or tax advice for your situation.
Two relationships: the appointment and the agreement
Estonian law distinguishes the corporate relationship from the contractual one. The corporate relationship arises from the appointment: the board member becomes the company's legal representative with the powers and duties set out in the Commercial Code (äriseadustik). The contractual relationship is the agreement under which the person performs this role. In Estonian practice it is a contract for services under the Law of Obligations Act (võlaõigusseadus), not an employment contract — a board member acting as such is not an employee of the company, even where the same person also has an employment contract for other work.
The two relationships can end separately. Shareholders may remove a board member at any time, but the consequences — notice, any compensation, return of documents — follow from the agreement. Without an agreement those questions are left to the general rules of the Law of Obligations Act, which rarely match what the parties had in mind.
What the agreement contains
- Duties and powers. The general duties are in the Commercial Code; the agreement adds the specific ones — the areas the person is responsible for, reporting to the shareholders, and any internal limits (for example, transactions above a threshold that need prior shareholder approval).
- Remuneration or no remuneration. Many small Estonian companies have a founder-director who is not paid for the board role. That is permitted, and the agreement should say so expressly. Where the board member is paid, the agreement states the amount and how it changes. Remuneration of a board member is taxable in Estonia; the tax consequences depend on the person's circumstances and are not part of our drafting service.
- Term and termination. The period of office, notice, and what happens on removal or resignation.
- Liability. A board member must act with the diligence expected of a prudent manager and is liable to the company for damage caused by a breach of duty (Commercial Code § 187). The agreement cannot exclude liability for intentional breaches, but it can deal with insurance and with the procedure for shareholder approval of important decisions — which, properly documented, protects a careful board member.
- Confidentiality and non-competition. The Commercial Code already restricts competition by board members without shareholder consent; the agreement can set out the scope, duration and any compensation for a post-term restriction.
- Return of property and documents at the end of the office, including access to bank accounts and e-services.
Who needs one
An agreement is useful in every company, and important in three situations:
- The board member is not a shareholder. A manager hired to run the company has no ownership to protect their position; the agreement is their main safeguard, and the shareholders' main instrument of control.
- There are several shareholders. If one shareholder runs the company, the others want to see written limits and reporting duties.
- The company is regulated or dealing with banks. Banks, payment institutions and supervisory authorities increasingly ask how the company is governed. A written agreement is part of the answer.
In our order form, a board member who is not a shareholder is priced as part of the company's composition (the first one is included). The service agreement is a separate document for each board member.
What you receive
The management board member service agreement costs for one board member, whether you buy a ready-made company or form a new one. You receive:
- the agreement in English (Estonian on request) for one board member;
- the board or shareholder resolution approving it;
- one round of amendments by email.
Not included: employment-law or tax advice on remuneration, agreements for further board members (each is ordered separately), and notarisation, which this agreement does not need.
How to order
Choose your package on the ready-made company or company formation page and tick "Management board member service agreement" in the add-ons. The price is fixed and is added to the total in the order form. If the shareholders also want to regulate their own relationship, add the shareholders' agreement in the same order. All communication takes place by email.
Frequently asked questions
Does a management board member need a written agreement?
The law does not require one, but without it the terms of the board member's work — remuneration or none, termination, liability, non-competition — are left to the general rules of the Law of Obligations Act. A written service agreement sets them out and is especially important when the board member is not a shareholder.
Is the board member's agreement an employment contract?
No. In Estonian practice a management board member acts under a contract for services, not an employment contract. Remuneration for the board role is taxable; the tax consequences depend on the person and are not part of our drafting service.