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Understanding your company director duties
Setting up or joining a company as a director is a significant milestone. It is important to be aware of the importance of being a director and the responsibilities it carries.
Who is a director?
Australian companies are required to have at least one director. A director is someone who is responsible for the direction and control of the company and are held to account for the business operations. Directors can be appointed formally or by their actions or involvement in the running of the business.
Formal appointment
To be formally appointed as a company director, you must agree to the role in writing. This occurs when registering a company through the Australian Securities and Investments Commission (ASIC) and nominating yourself as the director, or if joining a board of directors, upon appointment.
Shadow and de facto directors
Individuals should be aware that when working within companies, you may be deemed to be a de facto or shadow director, despite not being formally appointed as a director.
As a de facto or shadow director, you will have the same duties and responsibilities as a formally appointed director. You may be a shadow or de facto director if you:
- act in the position of a director (a de facto director); or
- provide instructions or wishes which the directors of a company are accustomed to act in accordance with (a shadow director).
What are director duties?
As a director, you are responsible for the oversight of the affairs of the company. These duties are set out in the Corporations Act 2001 (Act) and have also been outlined by the courts. These duties include, but are not limited to:
- to act honestly, in good faith and in the best interests of the company
- to avoid conflicts between the interests of the company and the director’s interests
- to prevent an improper use of position and/or information
- to exercise care and diligence
- to prevent the company trading while unable to pay its debts
- to maintain proper records and prepare financial reports
- to not disclose confidential information
Do these duties apply to anyone else?
These duties will apply to a anyone who is a company officer which includes a director, a company secretary, or a person:
- who makes, or participates in making, decisions that affect the company; or
- who has the capacity to significantly affect the company financial standing; or
- in accordance with whose wishes and instructions the directors of the company are accustomed to act (excluding advice given by a person as part of their professional capacity or function within the company such as an accountant or lawyer).
Company secretary
A company secretary is a person who is formally appointed to the company and is generally responsible for administrative functions, providing support to its board of directors and carrying out tasks to ensure the company is complying with the Act. This can include lodging financial reports to ASIC, reporting any changes regarding the company, share structure or members to ASIC and maintaining a registered office.
If you have any concerns about whether you may be deemed to be a director, company secretary or officer of a company, we recommend that you speak to your solicitor. You can find out more about company officeholder duties.
Breaches of director duties
Becoming a director and taking on those obligations and responsibilities is a serious decision and should not be taken lightly.
Breaching your director duties, can have significant legal consequences. The company itself can bring a claim against a breaching director or ASIC may bring an action if the director has breached their duties.
Penalties include costly fines, being held personally liable for company loss or damage and potential criminal action. Find out more about director liabilities.
Staying on top of your responsibilities
Given the serious implications of non-compliance, it is critical to be aware of your legal obligations if you are a director (including de facto, shadow or an officer).
In overseeing the affairs of the company, you can meet your responsibilities by:
- keeping up to date with your company’s performance including its financial position:
- liaising regularly with any management or staff and actively participating in the running of the business;
- considering all business decisions in line with the company’s interests rather than personal advantage and disclosing any personal interests you may have if needed; and
- seeking professional advice if required to ensure you are making informed decisions and practicing due diligence as needed.
You should only agree to be a director if you are willing and able to carry out the duties and responsibilities. Your legal obligations whilst a director may continue even if your company ceases trading and is deregistered. Find out more about your responsibilities as a company director.
To find out more, contact HIA's Contracts and Compliance team
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