There’s an old adage about the way a duck walks and quacks.. something similar applies to being a company director. When you act like the boss, the law treats you like one.
Directors’ duties are legal obligations that apply to all company officers, irrespective of the size or nature of your company, whether or not you are paid to be a director or have even been formally appointed to a board.
Whether you have accidentally fallen into the role of a company officer, you are about to establish a board or accept an invitation to join a board, ensure you get up to speed about your responsibilities and limiting your liability before you take the plunge (or as soon after as possible!).
What’s a company director?
A company director is someone that is in control of the overall governance and strategic affairs of a company. Directors must always act in the best interests of the company, no matter the circumstances. Before becoming a company director, you need to be aware of your legal duties and responsibilities. Here’s a crash course of the main legal duties of company directors for you…
Duty to the company & manage conflicts of interest
Directors must not use their powers for an improper purpose or to the disadvantage of the company. Directors have a fiduciary duty to the company’s shareholders. This means that directors are in a position of trust and confidence and must put the interests of shareholders before their own at all times.
Duty to act with care and diligence
Directors must maintain oversight over the company’s affairs, taking care to make all necessary inquiries to fully understand the company’s operations, finances and activities.
Duty to act in good faith
Directors must act honestly and sincerely in their decisions, without an intention to deceive. They are required to exercise their powers and duties in good faith, and in the company’s best interests.
Duty to reasonably rely on information provided by others:
A director’s role is to ensure they understand the company’s affairs and make diligent and well-informed decisions. Where necessary, directors may rely on information from experts and employees to help them make sound decisions, provided the reliance is reasonable and directors have made their own reasonable enquiries. No blind faith allowed!
Duty to not trade while insolvent
Directors must be informed about the company’s financial affairs at all times and ensure the company is able to pay its debts as and when they fall due. Beware! You can have serious cash in the bank and still be insolvent.. Directors must be financially literate.
Duty to avoid improper use of information and position
Directors have access to confidential and sensitive company information, which allows them to make informed decisions in the active discharge of their duties. Directors must not use any company information for an improper purpose or to the detriment of the company.
What can happen if duties are breached?
- You could be disqualified from being a director
- Criminal penalties of up to 15 years imprisonment can be imposed for serious breaches of directors duties
- Civil financial penalties of up to $200,000 can be imposed
- Directors can be personally liable to pay the company’s debts to creditors
We’ve got the governance expertise to ensure your board members are fully informed of their duties and to ensure you step up or into the role of company director with confidence.
We’re your governance team.
**Special thanks to our work experience super-star, Julia Kastanis, who co-wrote this blog.