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A management agreement formalizes the arrangements between a company and a director or manager in charge — usually as a contract for services, not an employment contract. This offers flexibility and potential tax benefits, but without such an agreement, you run the risk of ambiguity as well as being classified as an employment relationship. Below, you can read what a management agreement is, when you need one, and what to look out for.
What is a management agreement and what does it contain?
A management agreement is an agreement between a company and a party — usually a director or manager — who is in charge of the company or a department. In it, you stipulate:
- who is responsible for the management;
- which powers that person has;
- what obligations there are;
- what compensation is paid, often with bonuses for achieving objectives.
What is the benefit of a management agreement?
A management agreement formalizes the relationship between the company and the director or manager. Importantly, it is usually considered a contract for services and not an employment contract. Consequently, the manager is not an employee, which has far-reaching consequences: within the framework of the agreement, he has considerable freedom in exercising his powers.
Reasons why a management agreement can be more attractive than an employment contract:
- more flexibility for both the company and the manager;
- less stringent obligations under employment law;
- possible tax benefits.
TODO_VERIFY: Please note that the actual execution is decisive. If the manager acts as an employee in practice, an employment relationship may still be assumed (false self-employment), with tax and employment law consequences. Have this assessed on a case-by-case basis.
What if you don't have a management agreement?
A management agreement is not legally required, but the absence of one can cause problems:
- lack of clarity regarding responsibilities, powers, and remuneration;
- conflicts and problems in business operations;
- the risk that the collaboration is viewed as an employer-employee relationship, with major consequences.
Not every business needs one. If you have a sole proprietorship or work as a self-employed professional, a management agreement is usually not applicable. However, for companies, cooperatives, and foundations, where management and ownership are separated, it can be essential.
Frequently Asked Questions
Is a manager with a management agreement an employee?
In principle, no: the agreement is usually considered a contract for services. However, if the actual performance points to an employment relationship, that may nevertheless be assumed.
What are the benefits of a management agreement?
More flexibility, fewer binding employment law obligations, and potential tax benefits compared to an employment contract.
Do I need a management agreement as a sole proprietorship?
Usually not. A management agreement is particularly relevant for companies, cooperatives, and foundations where management and ownership are separated.
What is the risk without a management agreement?
Lack of clarity regarding roles and compensation, conflicts, and the risk that the relationship will be classified as employment.
Have a management agreement drafted or reviewed?
A carefully drafted management agreement prevents pitfalls and protects both the company and the manager. We draft your agreement or review an existing one, tailored to your situation.
View our corporate law or schedule a no-obligation intake consultation.
