Appointing a Spouse as Director: Legal Considerations for Family Companies

In Short

• Appointing a spouse as a company director means they assume all the legal duties under the Corporations Act 2001 (Cth), including acting in good faith, exercising care and diligence, avoiding conflicts of interest, and ensuring the company remains solvent.

• Spouse-directors have the same voting rights as other directors, which can lead to decision-making deadlocks if the couple disagrees, and equal legal responsibility, even if one spouse is more involved operationally.

• If the spouse’s role is mostly administrative or supportive, consider appointing them as a company secretary or employee instead, a less risky structure with fewer obligations and liabilities.

Tips for Businesses
Before appointing a spouse as a director, think through whether you really need the complete set of legal obligations that come with directorship. Document any role clearly, whether as a director, secretary or employee, and ensure all remuneration, duties and decision-making powers are spelled out. That way, you avoid unintended liability and operational friction.

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Table of Contents

• Understanding Director Duties and Legal Obligations
• Board Decision-Making and Voting Rights
• Identifying Purpose and Considering Alternative Roles
• Documentation and Remuneration Considerations
• Key Takeaways
• Frequently Asked Questions

Family companies often face the practical decision of whether to appoint a spouse as a director to assist with business operations or governance. While this arrangement can offer flexibility and shared responsibility, it carries significant legal implications that must be carefully considered. Under Australian corporate law, director appointments trigger substantial legal duties and responsibilities. 

Before proceeding with a director appointment, it’s crucial to identify the underlying purpose and consider whether alternative roles, such as company secretary or employee, might better serve the intended objectives. This article examines the key legal considerations when appointing a spouse as a director, the importance of proper documentation and the alternative role structures available.

Understanding Director Duties and Legal Obligations

When a spouse is appointed as a director, they immediately assume the full scope of legal duties and responsibilities under the Corporations Act 2001 (Cth) (Corporations Act). Essentially, directors must: 

• act in good faith in the best interests of the company;
• exercise their powers for proper purposes; and 
• avoid conflicts of interest. 

The duty of care and diligence is particularly significant, as it requires directors to actively inform themselves about the company’s financial position and business operations. A spouse-director cannot simply rely on their partner to manage these responsibilities. 

Rather, they must independently satisfy themselves that they are fulfilling their obligations. Breach of director duties can result in personal liability, including civil penalties, compensation orders and potential disqualification from managing corporations. This means that even in a family context, the appointed spouse bears genuine legal responsibility for the company’s compliance and decision-making.

Board Decision-Making and Voting Rights

A critical consideration when appointing a spouse as a director is understanding how this affects board decision-making dynamics. Regardless of their relationship to other board members or their level of involvement in day-to-day operations, each director holds equal voting rights at board meetings. This means that a spouse appointed as director has the same voting power as any other director, including their partner.

Companies should consider implementing clear decision-making protocols and, if necessary, appointing additional independent directors to avoid deadlock. The company’s constitution may also specify particular voting arrangements or casting vote provisions for the chairperson. 

Identifying Purpose and Considering Alternative Roles

Before appointing a spouse as a director, companies should clearly identify the underlying purpose and consider whether this role best serves their objectives. If the intention is to provide administrative support, maintain corporate records or assist with compliance matters, appointment as company secretary may be more appropriate. The company secretary role carries specific statutory duties under the Corporations Act, but generally involves less personal liability and responsibility than being appointed as a director.

The key consideration is ensuring that the chosen role structure aligns with the person’s actual function and the level of responsibility the company intends for them. Companies should critically assess:

• whether the spouse will genuinely participate in high-level strategic decision-making and governance oversight (the core functions of being a director); or
• whether their contribution would be better recognised through alternative appointment structures or service agreements.

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Documentation and Remuneration Considerations

If the spouse-director receives any form of consideration for their role, such as:

• cash;
• equity; or
• otherwise, this should be properly documented through appropriate agreements. 

For executive directors who take on operational responsibilities, an executive director agreement should outline their:

• duties;
• reporting structures;
• performance expectations; and
• remuneration terms.

This agreement should clearly distinguish between their role as directors and any executive functions they perform. 

Non-executive directors who primarily provide governance oversight should have their arrangements documented in a non-executive director agreement. Even if the remuneration is nominal or structured as benefits-in-kind, proper documentation protects both the company and the individual director. These agreements should address matters such as term of appointment, meeting attendance requirements, committee participation, insurance coverage and termination provisions.

Failure to properly document these arrangements can create complications for tax purposes, create uncertainty about the director’s actual role and responsibilities and potentially expose the company to claims regarding undocumented benefits or unclear employment relationships.

Key Takeaways

Appointing a spouse as director in a family company requires careful consideration of the underlying purpose and whether directorship is the most appropriate role structure. Equal voting rights that come with directorship can significantly impact business decision-making dynamics and may create challenges when spouses disagree. 

Companies should honestly assess whether the spouse’s intended contribution involves genuine strategic decision-making and governance oversight, or whether alternative roles such as company secretary or employee would better serve their objectives. 

If you have any questions regarding company structures, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions