Company directors are subject to a multitude of fiduciary duties and legal obligations as a result of the substantial power and influence their appointments afford. As such, the Corporations Act 2001 (Cth) (the Act) sets out particular requirements and restrictions as to who can and cannot be a director. So, can an Australian permanent resident or non-citizen become a director? The short answer is – yes. Below, we set out the requirements for non-citizen and permanent resident directors as well as the restrictions applicable to corporate executives.
Before Becoming a Director
Before being appointed as a director, take the time to understand the role and legal obligations of managing a company and the financial status of the corporation. It sounds like common sense, but it is important to know what you are taking on and the position your company will be in at the time of your appointment. Failure to conduct due diligence may mean you become personally liable for unpaid debts.
Company directors must be at least 18 years of age and must provide written consent to take on the role and responsibilities of a director before accepting the appointment. The business must advise ASIC whenever there are fundamental changes to a corporate entity. Details of these changes and appointments are recorded on ASIC’s database.
Sections 201A(1) and 201A(2) of the Act contains the residential requirements of directors which differ for public and proprietary companies. In short:
- A proprietary, or private, company must have at least one director who must ordinarily reside in Australia, and the company itself must be resident in Australia; and
- A public company must have at least three directors, two of whom must ordinarily reside in Australia.
The Act does not define the term ‘ordinarily reside’ and ASIC has provided little guidance regarding the criteria that directors must satisfy to fulfill this residential requirement. Ordinarily residing in Australia can be interpreted to mean being settled or regularly living in Australia. It does not translate to Australian citizenship. Therefore, a permanent resident or non-citizen can become a director where they can demonstrate an element of permanence to their residence in Australia. An individual can also satisfy this requirement where he or she is registered in Australia for tax purposes.
There are restrictions as to who may become a director of a company. Individuals who cannot become a director include as follows:
- An undischarged bankrupt;
- A person subject to a personal insolvency agreement;
- A person disqualified from managing corporations under Part 2D.6 of the Act, and who do not have permission from ASIC or leave granted by the Court to accept the appointment;
- A person subject to an arrangement under Part X of the Bankruptcy Act 1966 that has not been fully complied with;
- A person subject to composition under Part X of the Bankruptcy Act 1966 and final payment has not been made; or
- Who has been convicted of various offences such as fraud, a breach of fiduciary duties, or insolvent trading (subject to mandatory exclusion periods, generally within five years of conviction or after being released from prison).
These restrictions do not explicitly relate to permanent residents or non-citizens. However, if you fall into one of these categories, you cannot be a director, irrespective of whether you satisfy the ‘ordinarily resident’ test in the Act.
If you are an Australian permanent resident or non-citizen, you can become a director of an Australian company where you can demonstrate the permanency of your residence in Australia. This means Australia must be seen as the primary place you settled in contrast to other places you visit casually. In conjunction with meeting the ‘ordinarily resident’ test, you must not be a person excluded from holding a director’s position as outlined earlier in this article.
Thinking about becoming a company director or need help understanding the extent of your role and responsibilities? Get in touch with our commercial lawyers on 1300 544 755.