The Corporations Act states that every private company in Australia must have at least one director that “ordinarily resides in Australia”. Public companies must have at least two. This is a hurdle for people who reside overseas and are looking to start a company in Australia. Most people, even if they have friends and family within Australia, would not want to expose their family and friends to the risks associated with being a director, and so they will likely look for a professional that provides resident director services.

If you are looking to provide companies with resident director services, then there are a few important things to be aware of, which we discuss in this article.

The Risks of Being a Resident Director

A resident director is still a director of the company. Therefore, you cannot assume a passive role in the company. You must stay aware of the company’s activities and financial affairs. You will need to perform activities on behalf of the company, such as sign off on the Australian Securities and Investment Commission annual statement, pay tax on wages and pay superannuation for employees.

As a director, you have specific duties. If you breach these, you face heavy penalties, including fines up to $200,000. You also face imprisonment of up to five years. You have duties to:

  • act in good faith, in the best interests of the company and for a proper purpose;
  • exercise powers and duties with care and diligence; and
  • avoid conflicts of interest.

Directors also have duties to not:

  • improperly use their position to gain an advantage for themselves or another;
  • improperly use information gained as a director to gain an advantage for themselves or another; or
  • engage in insolvent trading.

You may also be responsible to meet other laws relevant to your company, such as environmental protection and workplace health and safety laws.

Protections that Limit Your Liability as a Resident Director

To limit your liability as a resident director, you should first ensure you have a resident director’s contract. This should explain:

  • the services you will be providing;
  • your obligations and those of the company; and
  • your fees for the service.

Secondly, ensure the company provides you with a deed of access, indemnity, insurance and release. This says that the company will pay your expenses incurred in performing directors’ duties. Ideally, it will continue to protect you even after you have stopped being a director.

Thirdly, have directors and officers insurance, which the company should pay for. This will not cover all risks. For example, insurance will not cover liability for breaches of directors’ duties. However, it will cover some risks, such as the payment legal costs. The extent of the insurance will depend on the particular policy, which you can negotiate with the company.

Additional Protections

In addition to those described above, there are some additional protections you can take to minimise your risks as a resident director, including that you:

  • require those requesting your services to provide their business plan, financial forecasts and proof of financial stability or security;
  • require 100 points of identification of the person requesting your services on behalf of the company (with all copies notarised, if possible);
  • monitor the company’s financial records to ensure the company remains solvent;
  • ensure the company appoints relevant advisers, such as a lawyer and an accountant;
  • monitor activity occurring on company bank accounts;
  • review all contracts the company is proposing to enter into; and
  • provide regular reports to the other directors and shareholders.

Key Takeaways

All directors of Australian companies have personal liability for the conduct of the company. Before providing resident director services, make sure that you understand the duties and risks of being a director. You should also ensure you have adequate protection, including:

  • a well-drafted contract for services;
  • a deed of indemnity, access, insurance and release; and
  • directors and officers insurance.

Importantly, ensure that you maintain a level of control and oversight over the company’s transactions. Ignorance will not be an excuse for breaching your duties.

If you need further assistance with preparing to become a resident director, call LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Bonnie-Anne Talese
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