When you have to choose your board composition, many questions come into play. While the Corporations Act sets minimum requirements on board composition, it is silent as to the maximum number of directors you can appoint to your board. This article will explain the maximum threshold for your board composition and highlight the general characteristics of board compositions for private companies.
The Minimum Threshold
The Corporations Act provides much of the legislative framework governing the legal requirements around your company’s structure, function and operation. At a minimum, your private company must have at least one director who ordinarily resides in Australia.
However, your private company must have at least two directors while the company has one or more crowd-sourced funding shareholders (‘CSF’). Of those directors, at least one must ordinarily reside in Australia. Otherwise, a majority of them must ordinarily reside in Australia. The company must have at least two directors when making the CSF offer.
Is There A Maximum Threshold?
There are no limits to the maximum number of directors you can appoint to your board. Nevertheless, it is common for a company’s shareholders agreement to contain a clause which sets a maximum number of directors for the company. This is because an investor expecting a seat at the board table will commonly want to ensure that the value of having a board seat is not diluted. Hence, the investor might insist you amend your shareholders’ agreement to set a maximum threshold.
Although a maximum threshold in your shareholders’ agreement is a commercial consideration, it is relatively standard to see the maximum number set at seven directors. Whatever maximum you decide on, it is good practice to set the maximum number as an odd number to avoid deadlocks.
Continue reading this article below the formHow To Appoint Directors
The process of appointing directors to your board ultimately depends on what documents you have. Most constitutions and shareholders’ agreements will deal with the appointment and removal of directors. However, if you do not have a company constitution, your company’s management is governed by the replaceable rules in the Corporations Act.
Notifying the Australian Securities and Investments Commission (ASIC)
When your company appoints or removes a director, you must notify ASIC within 28 days. When updating ASIC regarding the appointment of new directors, you must include the director’s:
- full name;
- address; and
- date and place of birth.
As an act of diligence, we recommend that you maintain a register of directors. You can include a register of directors in the document housing your required members, option holders and debenture registers or as a separate document.
Types of Directors
Generally, there are two broad categories of directors.
| Executive Directors | Executive directors are also company employees and usually play an active role in its day-to-day management. Typically, company founders are appointed executive directors when they incorporate the company. |
| Non-Executive Directors | These are directors who are non-employee directors. In private companies, you will likely see them appointed to represent the interests of substantial shareholders such as venture capital funds and some sophisticated angel investors. They might also be a strategic investor you appoint to the board to provide their industry expertise. |
While this distinction does not matter concerning your statutory requirements, it broadly highlights the type of director you will appoint as your company grows or if you are raising capital.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
You are not limited to any maximum number of directors you can appoint to your board. However, if you plan to limit the maximum number of directors your company can have, the general standard for private companies is seven. Whatever you decide, we recommend that you set an odd number of maximum directors to avoid deadlocks during decision-making.
If you need help with questions about your board composition, our experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
This will depend on the terms of your shareholders’ agreement and the threshold requirements for making amendments. Ordinarily, to amend a shareholders agreement, you will need to obtain consent from all signatories to the agreement.
Many shareholder agreements will outline how to appoint a chairperson who holds a casting vote in the event of a deadlock. Therefore, you will want to ensure that your shareholders’ agreement allows for the appointment of a chair with a casting vote.
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