Many directors establish a company without fully understanding the duties and responsibilities that apply.
Company directors are responsible for managing all aspects of the company’s operations and have various obligations under the Corporations Act 2001.
The Australian Securities & Investments Commission (ASIC) has the power to disqualify persons from acting as a company director if they have failed in their duties under the Corporations Act.
Key duties of a company director
As a director, you must ensure that you make business decisions while abiding to the following duties:
- Act in good faith and for a proper purpose – requires directors to act in the best interests of the organisation and in furtherance of the organisation’s purpose
- Act with reasonable care and diligence – keeping abreast of the organisation’s activities and understanding the financial position, while actively holding directors meetings
- Avoid misuse of information – information available to directors must only be used for the benefit of the organisation
- Prevent improper use of position – directors must not use their role to harm the company or gain an improper advantage
- Disclose and manage conflicts of interest – where conflicts arise, directors must disclose them and then appropriately manage
- Prevent insolvent trading – if a company becomes insolvent, directors must avoid incurring additional debts by continuing to trade
Being a director is no simple task, you must be aware and be up to date with your company’s financial position and actively administer director’s meetings. As a company director it is essential to acknowledge the following:
- The company itself holds the legal title and ownership of assets and you cannot treat company assets including funds and properties, as your own.
- Should there be grounds for expecting the company is insolvent, you must not continue to conduct business as usual, incur further debt or trade. You should take immediate action and seek professional assistance.
- Funds invested or loans received by the company must be used for a proper purpose for the company.
- Shareholders of the company are entitled to receive a dividend from the company, only when the company has ensured it has the capacity to pay any debts owed.
- The company itself is usually responsible for meeting its financial obligations however a director may be personally liable when they breach their legal obligations. e. Permitting the company to trade while it is insolvent.
- Directors may become personally liable under the ATO’s Director Penalty Regime, where the company has not met its employee and taxation obligations, such as PAYG Withholding, GST as a tax that is included in the DPN regime and Superannuation Guarantee
- These same responsibilities also apply to newly appointed directors of an existing company
It is crucial as the director of a company to understand your duties and responsibilities. Compliance with the various obligations under Australian law will help to avoid any civil penalties and personal liabilities arising.
For any help in understanding the implications listed above, or assistance with your company or directorship, please contact your Hall Chadwick QLD advisor.