If you’re thinking about joining a Board to add to your skill set, build up your CV, give back to the community or join a business, there are some important things you should be aware of before you sign on the dotted line to become a company director.
Legal duties apply to all companies.
Being on the board of your own company is a very different experience to being a voluntary director of a not for profit, other community organisation or a listed company. Being a director can be immensely rewarding; it is a huge responsibility and requires you to be aware of your legal obligations.
All directors, whether executive, independent, paid or voluntary, and irrespective of whether you are on the board of a not-for-profit company or your own shelf company, are subject to the same legal duties and potential personal liability. Yup… exactly the same!
Why it’s important you know what your legal duties are before you put your director’s hat on.
Your legal duties apply from the date you join a board. It is important you are aware of what the law expects of you before you become a director. Some of your legal duties include:
- to act in good faith in the best interests of the company and for a proper purpose;
- to exercise care and diligence;
- to avoid conflicts between the interests of the company and your personal interests;
- not to misuse company information or your position as director to the detriment of the company; and
- to ensure the company does not trade while insolvent.
To satisfy these responsibilities you need to ensure that you are fully informed about the company’s financial position, performance, and risks. You need to attend each meeting prepared and having read all relevant information, you must always act in the best interests of the company and must actively participate in decision making to meet your legal obligations. Catching up for coffee and biscuits and ‘going with the flow’ at your board meetings won’t cut it!
Avoiding personal liability.
The most serious risk you can face as a director is that you become be personally liable for the company’s debts or breaches of its legal obligations, such as OH&S breaches, tax and other statutory liabilities.
The key to avoiding risk is ensuring you are fully informed about all pertinent financial and operational risks and that you take all reasonable steps to ensure the company is compliant with its obligations. To do this you need robust governance system supporting the board within the company so that directors receive good quality information at the right time to enable them to make effective and well-informed decisions.
Before you jump on a board as a director, speak with us about how best to navigate the risks and rewards of office. If your board needs a refresh on director duties and risks, we also have the governance expertise you need to provide tailored training to ensure your board is up to speed with its obligations.
We’re your governance team!