There are numerous and important legal responsibilities imposed on directors under the Corporations Act 2001 and other laws, including the general law.
Of these duties, some of the most significant are:
to act in good faith in the best interests of the company and for a proper purpose
to exercise care and diligence
to avoid conflicts between the interests of the company and your personal interests
to prevent the company trading while insolvent (i.e. while it is unable to pay its debts as and when they fall due)
if the company is being wound up, to:
report to the liquidator on the affairs of the company
help the liquidator (e.g. by giving the liquidator the company books and records that you may have in your possession).
Responsibilities imposed on the company
The Corporations Act 2001 also imposes responsibilities on the company. As a director of the company, you are responsible for ensuring that the company complies with these obligations. These responsibilities include:
having a current registered office – A company must have a current registered office in Australia and must inform ASIC of its location.
having a principal place of business – A company that operates a business from a location different from the registered office must inform ASIC.
disclosing personal details of directors – A company must inform ASIC of the name, date of birth and current residential address of directors.
keeping financial records – A company must keep up-to-date financial records that correctly record and explain transactions and financial position. Larger companies have additional obligations to lodge financial reports with ASIC.
notifying ASIC of key changes – Whenever there are certain key changes to the company’s details (e.g. registered office, principal place of business, directors), ASIC must be notified.
paying relevant fees to ASIC – For example, the annual review fee.
checking annual statements – A company’s details on the ASIC register must be accurate and up-to-date.
How to meet your responsibilities
While this list does not cover every duty you may have or every possible circumstance, you are unlikely to get into trouble as a company director if you:
are honest and careful in dealing with the company and on its behalf with others
understand your legal obligations and make compliance with them part of your business
keep informed about your company’s financial position and performance, ensuring your company can pay its debts on time and keeps proper financial records
give the interests of the company, its shareholders and its creditors top priority, which includes acting in the company’s best interests (even if this may not be in your own interests)
use information you get through your position properly and in the best interests of the company
get professional advice or more information if you are in doubt.
As a director, you must be fully up-to-date on what your company is doing. You should:
find out and assess for yourself how any proposed action will affect your company’s business performance, especially if it involves a lot of the company’s money
get outside professional advice when you need more details to make an informed decision
question managers and staff about how the business is going
take an active part in directors’ meetings.
You should only agree to become a company director or secretary if you are willing, able and have enough time to put in the effort.
You should avoid situations where someone offers to appoint you as a director or secretary on the promise that ‘you won’t have to do anything’ and ‘just sign here’. You could be exposing yourself to serious liabilities if you accept such a role.
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