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Not everyone can be a company director. The position requires industry knowledge and having the know-how to deal with the day-to-day matters that the business faces. A valid appointment also requires compliance with certain procedures. Below, we set out the eligibility criteria for becoming a company director and what procedures they must follow for their appointment to be valid.

What are the Directors Duties to a Company?

Directors are mainly responsible for managing the business affairs of a company. A small company must have at least one director while larger companies may have multiple who make up the board of directors (the Board). The company’s constitution and shareholders agreement, as well as the Corporations Act 2001 (Cth) (the Act) give the Board a broad range of powers to carry out their duties. Importantly, a director should know the relevant provisions of the Act which state how he or she is to exercise their powers and discharge their duties, for example:

  • Acting with a degree of care and competence that a reasonable person would do if they were in the same position as that director;
  • Exercising their powers and duties in good faith and always in the best interests of the company;
  • Not using their position as a director to gain an advantage for themselves to the detriment of the company; and
  • Not improperly using information which was received by the director when acting for the company to the disadvantage of the company.

Who Can and Cannot be a Director?

To be a director of a company, the person must be over 18 years of age, and they must provide their consent. A private company or proprietary company will need to have at least one director who must reside in Australia. On the other hand, a public company will need to have at least three directors, two of which must reside in Australia.

Deciding to be a director in a company is an important decision that attracts significant responsibility. Each director will need to fully understand what the position requires of them, including any legal obligations in respect of managing the company (like those set out above).

Unless a court decides otherwise, the following people cannot be directors of a company:

  • An undischarged bankrupt or someone who has not complied with a personal insolvency agreement;
  • An individual who ASIC or a relevant court has banned from being a director;
  • An individual who has been convicted of fraud or other dishonesty related offences.

How Do You Consent to Become a Director?

Your must first provide written consent to your appointment, and the company will need to keep this consent. The company will also be obliged to advise ASIC of a new director appointment. In some cases, however, even if you do not formally consent to be a director, your actions may deem you a shadow director of the company. If you are seen to be a shadow director, you may be held liable for any breaches of law relating to directors duties even if you were not formally appointed as such.

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If you have any questions about your legislative duties and responsibilities as a director, get in touch with our commercial lawyers on 1300 544 755.

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