There is a classic saying that goes: “With great power comes great responsibility”.
When it comes to life in the corporate world, that famous old quote rings true for company directors.
Members of a company are commonly referred to as “shareholders”, and they own the company. Directors, on the other hand, are responsible for the management of the company’s business activities. As a director, you hold a high level of power when it comes to making these big decisions on behalf of the shareholders and you control the operation and future direction of the company. The decisions you make can determine the success or failure of the company for which you are a director. People’s jobs and livelihoods are at stake. So too is the capital and cash of investors and shareholders.
So when you reflect on the nature of your role as a company director, you must practice great care, due diligence and responsibility when exercising that power.
There are strict rules, regulations and legal obligations in place to guide your responsibilities as a director. Whether you’re in a small company with one or two directors or part of a larger corporation with an entire board of directors, the rules apply regardless of the size of the enterprise.
Each company is a separate legal entity, which means there are certain rules you must follow when dealing with factors such as assets, borrowing money and contracts. The details of these legal obligations are featured in the Corporations Act 2001, but as a general rule, you must not treat what the company owns (such as assets, funds and property) as if they were your own because those assets and transactions belong to the company, not you personally. At all times, you must carry out your directorial duties in good faith and in the best interests of the company.
Some of the other most important legal duties for a director include avoiding conflicts between the interests of the company and your personal interests and to exercise due diligence in preventing the company from trading while insolvent.
As a director, you are also expected to ensure the company meets its responsibilities imposed under the Corporations Act 2001. This includes having a current registered office, having a principal place of business, and disclosing personal details of directors, such as the name, date of birth and current residential address of directors. You must also ensure the company keeps its financial records in order, notifies ASIC of key changes and pays relevant fees to ASIC.
A general rule of thumb is to ensure you are fair, honest and careful in your dealings with the company and with others on its behalf. It is vital to stay informed and up to date with your company’s financial position and its reporting mechanisms and to get professional advice or information if you are unsure about anything. While there are always individual circumstances for each company that need to be considered should things go wrong, in many cases the debts of the company will remain with the company provided the business has been responsibly managed?
Of course, there are cases where directors have deliberately breached the Corporations Act 2001 and they can become personally liable for the company’s debts or be held responsible for regulatory action. As with all director’s duties and legal obligations, it is vital to seek professional advice and guidance if you have any in-depth questions or issues to do with your role as a director.