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Date Created: 12/22/15
What are The Main Duties and Responsibilities of Company Directors? Becoming the director of a registered company involves taking on certain legal obligations and duties, spelt out in the Corporations Act. The purpose of these legal obligations and duties is to protect all parties: members of the public, the company, its creditors and shareholders. A company director, for example, can be held liable for a company’s debts at a time when the incorporated entity was unable to pay those debts as, and when, they fell due. If a director breaches certain if his or her duties, he/she will be liable to compensate the company for any losses suffered as a result of those breaches. In some cases, a company director can also be personally liable for civil and criminal penalties and for losses incurred by the company when acting as a trustee for a trust. If a company seeks credit from a commercial lender, that lender will often require a personal guarantee from company directors before granting the loan. This means that if the company defaults on the loan, the personal assets of the director may be put at risk. It is such financial risks faced by directors that make some of their core responsibilities so essential. For instance, it makes good sense that directors must act diligently to control the financial affairs of the company and ensure that it only incurs debts that it is capable of paying. It is always recommended that, as a company director, you seek expert legal advice before entering a loan agreement or signing any personal guarantees for the liabilities of the company. Fundamentally, a company is reliant on its directors carrying out their duties to ensure it is able to run properly. The Replaceable Rules (as set out under Corporations Law) or the company’s own Constitution set out the rules by which directors are charged with taking responsibility for the company’s affairs and management. The only time the director’s authority can be overridden is at a general meeting, as set out by the Corporations Act or within the Replaceable Rules or Constitution. In the event of a general meeting, it is the director’s responsibility to keep written records of meeting minutes and resolutions made. You must be 18 years of age to become a company director. If you are the company’s sole director, you must reside in Australia. If the company has more than one director, then at least one director must ordinarily live in Australia. Before becoming a director, you must give your written consent to do so. That written consent must be kept on file by the company and ASIC must be notified of your appointment. If you have previously breached the Corporations Act, ASIC or a court can stop you from becoming a director. If you have a criminal record, or if you’re bankrupt, you will need the special permission of the court to become a company director. The five core duties that a director has are: 1. To act in good faith in the best interest of the company 2. To act with care and diligence 3. Not to use information obtained in performing your role as director 4. To avoid conflicts of interest 5. To prevent the company from trading while insolvent
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