No matter the size of your company, if you are a director, you have a number of duties and responsibilities to both the company and the public. These duties are primarily imposed by the Corporations Act 2001 (Commonwealth). In addition to their duties under the Corporations Act, directors have a number of other duties set out in various other legislation as well as the common law.
The information in this article is for general purposes only and should not be relied on as specific legal advice. Should you have any particular questions please contact your solicitor or contact the author directly.
It is important to understand and comply with these duties. The failure to comply with these duties may result in directors being personally responsible for any loss caused by the breach of these duties, or even criminal prosecution by the Australian Securities and Investment Commission (ASIC).
The most significant duties of directors are:
To act in the best interest of the company
A director must act in the best interests of a company and to its shareholders as a whole, ahead of their own personal interest. This can get confusing especially in a situation where the directors and the shareholders are one and the same – a common scenario in small businesses. It is important to remember that the company is considered a separate legal entity, has its own interests, and these interests may not be the same as the director’s interests.
To act with care and diligence
A director must perform their duties with the same care and diligence that a reasonable person would have should they be in the director’s shoes.
To act in good faith
A director must perform their duties in good faith, and not dishonestly or fraudulently.
To use their position as a director for the proper purposes
A director has an enviable position that allows them to control the company’s business. It is important that they do not abuse this position to act in their own interest, or the interest of someone else. In addition to this, a director would commonly come into information as a result of his or her position. A director cannot use this information to act in their own interest or the interest of someone else.