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What is the Criteria for Becoming a Company Director?

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Fulfilling the role of a company director requires having the know-how to deal with day-to-day matters that the business faces and complying with certain legal duties. A valid appointment also requires compliance with certain conditions. This article sets out the eligibility criteria for becoming a company director and what procedures to follow for a valid appointment.

Should I Become a Director?

Before considering the legal aspects of appointing someone as a company director, you should note the commercial considerations. A company director has significant responsibility and decision-making power and should be someone who aligns with the direction and goals of the company. A director should ideally have adequate technical skills and experience to manage the business effectively and develop and support it in meeting its goals.

Who Can and Cannot Be Appointed as a Director?

The following requirements apply to be legally appointed as a director:

Failure to hold a DIN before being appointed can attract significant penalties. At the time of writing, an individual risks a fine of up to $1.1 million. Generally, applying for a DIN is quite fast and straightforward. You can do this through your MyGov account.

Once these criteria have been satisfied, the company must notify the Australian Securities and Investments Commission (ASIC) within 28 days. 

Notably, a private company must have at least one director who ordinarily resides in Australia. A public company will need at least three directors, two of which must ordinarily reside in Australia.

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; and
  • an individual who has been convicted of fraud or other dishonesty-related offences.
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Normally a director will be appointed per the following:

  • certain provisions in the company’s constitution or the ‘Replaceable Rules’ under the Corporations Act 2001 (Cth) (the Act); or 
  • the shareholders agreement relating to the company.  

Additionally, an incoming company director must first provide written consent to their appointment. The company will need to keep this consent with the company records. 

In some cases, even if you do not formally consent to be a director or have a formal appointment, your actions and involvement in the company’s decision-making may deem you a shadow director of the company. As a shadow director, you will still owe the same duties to the company as formally appointed directors. Likewise, the law can hold you liable for any breaches of law relating to directors’ duties and actions of the company.

What are the Duties That a Director Owes to a Company?

Directors have a variety of duties both at common law and under statute (mainly the Act). The company’s constitution and shareholders agreement will also set out limitations on how they can act as a director. 

Some of the duties of a director at law include:

  • 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; 
  • not improperly using information which was received by the director when acting for the company to the disadvantage of the company; and
  • not allowing the company to trade while insolvent.

Failing to comply with these legal duties may attract personal liability, civil and criminal fines and penalties. 

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Key Takeaways

Appointing a director is a significant decision for any company, and choosing someone who will contribute to and align with your company’s objectives is vital. An incoming director will need to understand the weight of their position and familiarise themselves with the duties they owe to the company. Once a director is ready to be appointed, they must provide their written consent and hold a DIN, and the company must update ASIC within 28 days of the appointment. 

For more information about your corporate duties as a director, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What are the criteria to be appointed as a director?

To be appointed as a company director, an individual must be over 18, hold a DIN, and provide written consent. Likewise, they must not be barred or disqualified from being a director.

What must the company do to appoint someone as a director?

Commercially, the company should only appoint a director who aligns with the goals and direction of the company. Legally, a company must ensure the individual meets the above criteria and notify ASIC within 28 days of the appointment.

What duties do directors owe to the company?

Directors owe a range of duties at law. Broadly these boil down to the director acting in the company’s best interest and not misusing their position to gain a personal advantage. A breach of directors’ duties can lead to civil and criminal penalties for the director personally.

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