Under the Corporations Act 2001 (Cth), directors owe duties to shareholders and have obligations they must fulfil. The responsibility the position attracts necessitates rules about who can and cannot be a director. We discuss below whether permanent residents or non-citizens can be a director of an Australian company, and if so, when. It also explains why these rules exist.
Permanent Resident and Non-Citizens
Under Australian law, a permanent resident is an individual with a valid visa to remain in Australia indefinitely (subject to government revocation). After a period, permanent residents can apply for Australian citizenship. A non-citizen differs from a permanent resident in that he or she doesn’t have Australian citizenship nor a valid visa.
To prove that someone ordinarily resides in Australia, they must be able to demonstrate that they have a regular, habitual mode of life in a particular place. The mode of life needs to be continuous and persistent but can permit temporary absences. A resident must have voluntarily chosen a place and have a settled purpose for being there.
Residency has important implications, most notably it determines where a person pays tax. That is why some people may choose to become residents of places with unusually low taxation rates or relatively few tax laws.
Can Permanent Residents and Non-citizens be a Company Director?
The answer depends on the type of company they intend to become a director.
All proprietary companies require at least one company director who ordinarily resides in Australia. As such, a permanent resident can be a director of a proprietary company. If that company has a director who resides in Australia and decides to have more directors, those directors could conceivably be non-citizens.
Public companies require a minimum of three company directors, two of whom must ordinarily reside in Australia. A permanent resident is thereby eligible to be a director of this type of company. A non-citizen could also be the third, non-resident director.
Other Regulations for Becoming a Company Director
Rules concerning residency are not the only restrictions on who can be a company director. A director must be at least 18 years and must consent to become a director (assuming capacity).
The following people cannot be directors of an Australian company:
- Undischarged bankrupts;
- Those who have entered into a personal insolvency agreement under the Bankruptcy Act 1966 (Cth) and have not complied with the terms of that agreement;
- Those who are subject to a ban from being a director. The Australian Securities and Investment Commission (ASIC) as well as the courts have the right to impose such a ban and will specify the applicable period;
- Those found guilty of various dishonesty-related offences. The ban lasts five years from the date of conviction.
Why Regulate Who Can be a Director?
Regulators govern who can or cannot be a director including regulations on residency to protect shareholders as well as the office of director and institution of companies.
For example, a person recently convicted of a dishonesty offence could reasonably act dishonestly as a director. If he or she appropriated money from the company, the business and the shareholders would suffer. Regarding residency, a person who does not reside in Australia may be less invested in the community and may be less concerned about complying with the regulatory framework.
Further, with no regulation on residency, non-resident or non-citizen directors could potentially engage in gross misconduct and estrange themselves from the Australian legal system. It is possible that they cannot be held legally accountable for their actions.
The rules and regulations surrounding the appointment of company directors reflect the need to protect the responsibilities associated with the position. If you have any questions as to whether you can be a director of a company, or about your duties, get in touch with our commercial lawyers on 1300 544 755.