Nordia Law

Chief Executive Officer Agreement

The Chief Executive Officer (CEO) is, by law, the official body of the limited company, whose responsibilities and obligations are determined in accordance with the Limited Liability Companies Act. The CEO does not operate under an employment leadership or supervisory relationship and is not subject to labor law legislation; therefore, the CEO agreement is a crucial document for defining the rights and obligations of the CEO’s employment relationship. The CEO is without statutory employee protection, and the Working Time Act and the Annual Holidays Act^[1] as well as any collective labor agreement do not apply to the CEO’s service unless specifically agreed otherwise. However, the CEO is covered by statutory accident insurance unless they, either alone or together with family members, own more than half of the company’s share capital (as per Section 9 of the Act on Workers’ Compensation). Although the CEO is not in an employment relationship, the role of the CEO should be clearly regarded, under the provisions of the Limited Liability Companies Act, as a personal duty of a natural person, for which the remuneration paid is considered taxable income under the Advance Withholding Tax Act rather than a service compensation.

There are no provisions regarding the CEO agreement in the Limited Liability Companies Act. Freedom of contract allows for extensive arrangements under contract law. If desired, the parties may also agree that the Annual Holiday Act or certain specific labor law rules or individual provisions of the law shall apply to the service. In the absence of any specific legal applicability agreement, the general principles of contract law and the Act on Contracts shall govern the drafting and interpretation of the agreement. Due to the lack of statutory rights and obligations, the agreement should extensively address various aspects related to the service. There is no prescribed form required by law for the agreement; however, it is advisable for the agreement to be made in writing. When signing the CEO agreement on behalf of the company, it is essential to comply with the regulations regarding the authority to sign as defined in the company’s articles of association.

Below are the typical matters agreed upon in a Chief Executive Officer (CEO) agreement.

• Parties
• Service description
• Representation and authority limitations
• Commencement and duration of service
• Working time
• Compensation
• Performance bonuses and incentives
• Retirement benefits and insurance
• Options
• Annual holiday
• Sick leave compensation
• Family leave
• Travel expense reimbursement
• Non-compete clause
• Permissibility of secondary Service
• Recruitment and solicitation prohibition
• Confidentiality obligation
• Intellectual property rights
• Termination and dissolution of the agreement
• Severance compensation
• Breach of contract, damages, or contractual penalty
• Dispute resolution
• Governing law
• Signatures

NORDIA’s attorneys assist in drafting and commenting on CEO agreements under Finnish, Swedish, Norwegian and Danish law. Contact us.

Termination of the Chief Executive Officer Agreement

The board of directors may decide to dismiss the CEO and terminate the service agreement at any time during the term of the service (Limited Liability Companies Act 6:20.3). This right cannot be transferred or delegated to another body, such as the general meeting through the articles of association, nor can it be contractually restricted in terms of time. The board’s decision to dismiss must be made by majority vote. The decision to dismiss must be recorded in the minutes of the board meeting. Since the CEO of a limited liability company is part of the company’s executive body and not in an employment relationship with the company, they can be dismissed at any time without specific cause. In practice, reasons for dismissal often include a loss of trust, insufficient performance, or differences in views on business management.

Unless otherwise agreed in the CEO agreement, the dismissal shall take effect immediately. However, the board of directors may decide that the termination will take effect at a later date. If the company’s articles of association require that the company have a CEO, a new CEO must be appointed to replace the dismissed one. Under the Limited Liability Companies Act, the CEO is not a mandatory corporate body, and in the absence of a provision in the articles of association, the board may decide not to appoint a new CEO to replace the previous one.

The dismissal of the CEO must be reported to the Trade Register without delay. The Trade Register entry informs third parties about the company’s representation rights, making it essential that the entries are kept up to date. The notice to the Trade Register must be accompanied by the dismissal decision, certified by one person as a true copy.

Upon the termination of the service, the CEO may be entitled to a notice period or severance pay as specifically agreed in the CEO agreement. The CEO agreement may also include detailed criteria and procedures regarding the grounds for dismissal, which must be followed. However, such an agreement cannot override the board’s statutory authority to decide on the termination of the CEO’s service with the company. The service agreement between the CEO and the company is binding only under contract law and cannot limit the company’s corporate law rights. Even if the agreement requires certain grounds for termination, the absence of such grounds does not continue the service relationship or invalidate the board’s decision. In such cases, the situation may only result in a claim for damages due to a breach of contract.

In addition to the board’s right to dismiss, the CEO may voluntarily resign from their position. The resignation takes effect no earlier than when the resignation is notified to the board of directors (Limited Liability Companies Act 6:20.2). The parties may agree that the resignation takes effect at a later date. This is a position of trust, and no one can be compelled to work against their will. The CEO agreement may set forth more specific terms and procedures regarding resignation, but as noted, these only bind the parties under contract law.

[1] The Labor Council has issued individual rulings stating that the Annual Holidays Act shall also apply to the Chief Executive Officer (CEO). In practice, it is most clear to specify in the CEO agreement that the Annual Holidays Act applies to the CEO.