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Are you a Company Director?

What it Means to be a Director of a Company

A company is a separate legal entity with its own rights and obligations.  Company assets, liabilities, income and expenses belong to the company entity, not to the individual directors.

Directors are bound by certain rules that govern your behaviour.  You must carry out your duties as a director in good faith, in the interests of the company (even if that conflicts with your personal interest), and for a proper (legal) purpose.

The Corporations Act 2011 imposes legal obligations on company directors and sets out how directors must perform their duties and how they are expected to manage the affairs of the company.

Directors Key Responsibilities

  1. To act in good faith in the best interests of the company and for a proper purpose
  2. To exercise care and diligence
  3. To avoid conflicts between the interests of the company and your personal interests
  4. To prevent the company trading while insolvent (i.e. while it is unable to pay its debts as and when they fall due)

If the company is being wound up, to:

  1. report to the liquidator on the affairs of the company
  2. help the liquidator (e.g. by giving the liquidator the company books and records that you may have in your possession)

It is expected that a director can guide and monitor the management of their company.  A director’s responsibilities are not changed or limited by previous experience (or lack thereof).

Directors have a duty to act with honesty and diligence according to your legal obligations as set out in the Corporations Act 2011, and any other relevant laws such as Superannuation Guarantee Act 2009 and Goods and Services Tax Act 1999.

Company Responsibilities

Recommendations

What to do When Things go Wrong

In most cases, if things go wrong, the debts of a company remain with the company entity.  The company entity will be active until it is de-registered with ASIC.  However, in some circumstances, company directors may become personally liable for unpaid debts, and this liability may continue even though a company has ceased operations. 

Summary

This is not a complete guide to director’s responsibilities but is meant as an overview.  You should check the links below for more detail on all aspects of your responsibilities as a company director.

Disclaimer: All or any advice contained in this post is of a general nature only and may not apply to your individual business circumstances.
For specific advice relating to your specific situation, please contact us for further discussion. We are a Registered Agent with the ASIC and Registered Tax Agent.
This information is produced by The Institute of Certified Bookkeepers and distributed by members

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