Shareholders typically appoint directors as per the company’s shareholders agreement. In some businesses, shareholders may have the right to appoint more than one director depending on what percentage of shares certain shareholders hold in a company. Below, we explain what matters directors usually consider as well as their duties.

The Board Of Directors

The company’s board of directors takes care of the day to day management of a company, so ensuring that board meetings are held correctly and satisfy all legislative requirements is an important matter for operating a business.

Boards may also have the right to appoint or remove a director, which is done by special resolution. A special resolution will require the agreement of more than 75% of the board of directors (however, the percentage is negotiable and will depend on the terms of the shareholders agreement). A director will need to consent to its appointment as a director in writing. A director may also resign by giving notice to the company in writing.

Directors’ Duties

The company’s constitution and shareholders agreement will set out the directors’ duties and procedural requirements they must follow. This is in addition to the duties and requirements set out in the Corporations Act 2001 (Cth). Company directors must undertake to:

  • Exercise their powers and discharge their duties with the degree of care and diligence a reasonable person would do if they were in that director’s position and had the same responsibilities (also known as the reasonable person test);
  • Act in good faith and in the best interests of the company;
  • Not to use their position as a director to gain an advantage for themselves to the detriment of the company; and
  • Not to improperly use information gained by them when acting for the company to disadvantage the company.

Conflicts of Interest

It may happen in the course of discharging their duties to the company that a director is put in a position where a conflict exists between the personal interests of that director and his or her duties to the company. In this instance, the director must notify the board of directors. It might also be the case that the director may need to follow the prescribed requirements under the Corporations Act dealing with a director’s potential conflict of interests. You can read more in our article about when a director should disclose any conflicts of interest.

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Company directors must understand their relationship between the board as well as their duties under the Corporations Act to avoid breaching their responsibilities. If you are a director and would like more information about your obligations, or need assistance drafting a company constitution or shareholders agreement, get in touch with our commercial lawyers on 1300 544 755.

Natalie Dickson

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