Overview of company director responsibilities
Updated: Jun 2, 2018
As though business owners and principals don’t already have enough on their minds, discussion about the ups and downs of the business environment is being heard around the barbecue again — just to add to the list of excuses for not sleeping well at night.
Company directors especially need to keep in mind that the Corporations Act holds directors personally liable for many of the legal and financial obligations expected from a company.
As anyone running a business knows, commercial decisions must be made, and many times these decisions involve some degree of risk. While the distinction between entrepreneurial freedom and delinquent corporate behaviour will be clear cut for most company directors, there are nevertheless circumstances where these lines can blur, resulting in sometimes substantial (and sometimes unexpected) personal exposure.
Risks and liabilities The corporate regulator, the Australian Securities and Investments Commission (ASIC), says failing to perform your duties as a director can, in the more extreme cases, lead to being found guilty of a criminal offence with a penalty of up to a maximum of $200,000, or imprisonment for up to five years, or both.
ASIC gives an example of how a director may be asked by a bank to give a mortgage over their house to secure the company’s repayment of a loan. If the company does not repay the loan as agreed with the bank, the director will be liable (and could lose their house).
Another liability, for example, is that one’s obligations as a director continue even after a company has ceased trading. Under certain circumstances a director can still be held personally liable for ongoing debts and other losses even after a business has stopped operating.
And then there are the tax obligations for PAYG withholding and superannuation guarantee charge payments, which are outlined under the ATO’s “director penalty regime” (read more here).
The ATO, aware that some business readers may be shifting uncomfortably in their seats right about now, recommends that directors get up to speed on what is expected of them. It says one good source is the ASIC Guide for Small Business Directors.
Misconceptions A fact that ASIC has found small business company directors continually need to be reminded of is that as far as the law is concerned, a company has a distinct legal existence that is separate from that of its owner, manager, operator, employees and agents.
ASIC says a company has its own property, and its own rights and obligations. A company’s money and assets belong only to that company and must be used for the company’s purposes. But it also has the powers of an individual, including the power to:
own and dispose of property and other assets
enter into contracts
to sue, and be sued.
Company directors, according to ASIC, have seven key responsibilities. These include:
disclosing personal details of directors – a company must inform ASIC of the name, date of birth and current residential address of directors
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
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 (for example 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.
On the first dot-point, several bodies, including the Governance Institute of Australia, have requested the removal of certain identifying personal information for company directors on the registry, replacing it with just their names and unique director identity number (DIN). Its concerns centred on privacy and security issues, and that company directors and their families were unnecessarily exposed.
This article is intended to be a guide only. None of the comments contained in the article are intended to be advice, whether legal, financial or professional. You should not act solely on the basis of the information contained in this article because many aspects of the material have been generalised and the tax laws apply differently to different people in different circumstances. Further, as tax and related laws change frequently, there may have been changes to the law since this article was published. Specific advice should always be obtained from a tax professional.