Corporate Governance & Directors Duties

Being a Company Director or Shareholder comes with certain rights, obligations and risks.

Our Senior Corporate & Commercial Lawyers have the expertise to deliver the advice and outcomes you need and pride themselves on their proactive approach to helping Company Directors manage their statutory obligations and duties.

The responsibilities and regulatory obligations of Directors and other Company officers are significant. Failing to understand these rights and obligations can lead to inadvertently breaching an obligation, liability to the company or its shareholders for breach of a directors’ duty or even large fines or imprisonment.

Corporate Governance

Our experienced Company Lawyers offer support and guidance on Corporate Governance issues, including:

  • directors’ duties, liability and protection,
  • composition of the board of directors and board procedures,
  • preparation and assistance with circular resolutions,
  • related party transactions,
  • changes to share capital (including capital reductions and share buy-backs),
  • fundraising and disclosure regulation,
  • voluntary deregistration and winding up processes,
  • legal structures including corporations, joint ventures, trusts and partnerships,
  • corporate structures & restructures,
  • reporting requirements and general meeting procedures,
  • obligations to shareholders, ASIC and other regulatory bodies,
  • disputes with directors and/or shareholders, and
  • crowd-sourced funding (crowdfunding) and related Agreements. 

What are Directors’ Duties?

Directors are generally responsible for running the day-to-day activities of a company, including its business. The duties owed by Directors to a Company extend beyond the normal fiduciary duties of a senior employee to an employer as the Corporations Act and relevant WH&S legislation, impose legal obligations upon Directors, including:

  • ensuring proper financial records are kept,
  • ensuring the company can pay its debts and does not trade whilst insolvent,
  • understanding what the company is doing at all times,
  • acting in the best interests of the company,
  • acting in good faith and for a proper purpose,
  • not improperly using their position to gain an advantage for themselves or cause detriment to the company,
  • not improperly using information gained from their role, and
  • ensuring compliance with Work Health & Safety Laws, including the due to exercise due diligence.

A Company’s Constitution and Shareholders Agreement can also provide additional responsibilities upon Directors.

It is important that every Director is aware of their legal obligations so they can be properly discharged to avoid personal liability.

Business Succession Planning Guide

Financial certainty and peace of mind for business co-owners in the event of death, disability or serious illness.

Safe Harbour Guide

What Company Directors who suspect insolvency should do to avoid personal liability for Insolvent Trading.

Work Health & Safety Guide

An introduction to PCBUs’ duty of care and Officers’ duty to exercise due diligence under the Work Health & Safety Act NSW (2011).

What happens if a Director breaches their duties or obligations?

If a Director is found to have breached their duties or obligations the director may be personally liable for damages, fines, or ATO Director Penalties. Directors also risk prosecution under the Work Health & Safety Act and even gaol time depending upon the severity of the breach.

Directors can also be personally liable, including liable for the debts of the Company, in other circumstances such as if the:

  • Company trades whilst insolvent,
  • Company fails to pay its withholding tax, GST or superannuation guarantee liabilities,
  • Director signs a personal guarantee, or
  • Director engages in misleading or deceptive conduct.

Given the severity and real risk of personal liability, every person who is, or is thinking of becoming, a Director should seek legal advice to understand and manage the significant legal obligations and duties of Directors.

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Frequently Asked Questions

What is Corporate Governance?

Corporate governance is the processes by which an organisation is directed, controlled and held to account.

Having a good corporate governance system in place will help to ensure the success of the Company and its compliance with various legislative obligations, including under the Corporations Act, Competition and Consumer Act and the relevant tax and WH&S laws. It will also assist Directors meet their personal legal duties and obligations to the Company.

What are the Reporting Requirements for a Company?

A Company is required to prepare a financial report and a Directors’ report for each financial year when it is a:

  1. disclosing entity,
  2. public Company,
  3. large proprietary Company, or
  4. registered scheme.

A Company will be a large proprietary Company when it satisfies at least two (2) of the below criteria:

  1. the consolidated revenue of the Company and any entities it controls at the end of the financial year is $50 million or more,
  2. the value of the consolidated gross assets of the company and any entities it controls at the end of the financial year is $25 million or more, and
  3. the Company and any entities it controls at the end of the financial year have 100 or more employees.

A small proprietary Company (as opposed to a large proprietary Company) is generally not required to prepare annual financial reports and Directors’ reports, unless:

  • specifically directed to do so by the shareholders or by ASIC,
  • if the Company was controlled by a foreign Company for all or part of the year, or
  • it has one (1) or more crowd-source funding shareholders at any time during the financial year.

Companies often work closely with accountants in order to create, keep, record and lodge the financial data of the company, however, the responsibility still rests with the Company’s Directors and Secretaries to ensure this is done.

What is a Circular Resolution?

Circular resolutions, also known as ‘resolutions without meetings’ are a method for allowing Directors of a Company to pass a resolution without the need to hold a meeting. This area is governed by Section 248A of the Corporations Act 2001 (Cth).

The resolution/s (the decisions or actions the company is seeking to pass) are to be outlined in a written document and circulated to all the Directors who are entitled to vote (based on the Company Constitution). Each Director is to sign the document noting their agreement to the resolution. There can be separate copies of the document, provided they are all identical. When all required Directors have signed the resolution, it is immediately passed and is required to be noted in minutes.

Circular resolutions are beneficial for resolutions which are non-contentious, and in situations where it may be difficult for Directors to meet. However, circular resolutions are not recommended for resolutions which require discussions or may be debated.