Knowing your duties as a company director
As a director, you are responsible for the management of the affairs of your company and must comply with legal obligations under the Corporations Act 2001 and other laws, including general law. This is the case even when you appoint an agent to look after your company’s administrative affairs.
The legal obligations summarised below represent a non-exhaustive list of requirements which directors must comply with. As directors of a company are personally liable for decisions made in that capacity, it is critical to understand all obligations imposed on the role. In general, you should:
- Take an active interest and assess for yourself how any proposed action will affect your company’s performance,
- Obtain professional advice when you require more details to make an informed decision,
- Take an active part in directors’ and management meetings.
Responsibilities imposed on directors
1. Act in the company’s best interests.
While you may set up a company for personal or taxation reasons, you must act in the company‘s best interests, not your own. This means making the interests of the company, its shareholders and its creditors top priority.
2. Exercise care and diligence.
You must be honest and careful in your dealings at all times. This includes being informed of the financial affairs of the company, guiding the company and monitoring management.
3. Avoid conflicts between the interest of the company and your personal interests.
Directors have what are known as “fiduciary duties” owed to their company. This is an important legal relationship, and is a duty of trust and good faith. In this context, directors must put the interests of the company ahead of their own. Directors cannot put themselves into situations where they have a personal interest which conflicts with the interests of the company, either now or in the future.
4. Ensure your company is solvent.
A company is solvent when it can pay its debts when they are due. Indicators of insolvency include:
- low operating profits,
- cash flow problems,
- difficulty paying suppliers and other creditors on time,
- problems meeting loan repayments on time or difficulty keeping within overdraft limits, and
- legal action taken, or threatened, by suppliers or other creditors over money owed to them.
5. Use information appropriately.
You must use any information you obtain through the company in the best interests of the company. Using that information to gain, directly or indirectly, an advantage for yourself or for another person, or to harm the company, may be a crime.
Responsibilities imposed on the company
1. Have a registered office.
Your company must have a registered office in Australia and must inform the Australian Securities & Investment Commission (ASIC) of its location. All ASIC communications will be sent to your registered office.
2. Have a principal place of business.
If your company operates from a different location to the registered office, you must inform ASIC of that address.
3. Disclose personal details of directors.
You must inform ASIC of the name, date of birth and current residential address of directors (and company secretaries if your company has one). A post office box cannot be used as the registered office, principal place of business or for the personal contact details of directors – it must be a physical address.
4. Keep financial and other records.
A company must keep up-to-date financial records that correctly record and explain the transactions, financial position, and performance of the business. Only larger companies, or companies that exist for charitable purposes, have the additional obligation to lodge financial reports with ASIC.
5. Pay relevant fees to ASIC.
The ASIC annual review fee, registration fees and fees for lodging certain documents must be paid when they fall due. ASIC imposes substantial penalties on late payments.
6. Notify ASIC of changes.
Whenever there are key changes to the company’s details (changes of address, appointing or resigning directors, share transfers) ASIC must be notified. For the most common changes, there are no lodgement fees payable but they do need to occur within 28 days of the change. Even when there is no lodgement fee, there may be a late fee payable if the form is lodged after the due date.
7. Check Annual Statements.
When a company receives its annual statement, you must ensure that the details on ASIC's registers are accurate and up to date.
Need expert advice?
Marsh & Partners are committed to working with companies to help them meet their goals and stay compliant. If we can help you with any of the issues raised in this article, please contact us. This article is intended to give an overview and is not a substitute for legal advice.
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