Regardless of your industry or type of business, if your entity structure is a company then it is important you understand your role as a director of the company and your duties to the company.
A company is a separate legal person. It is required to follow the law and has obligations to pay tax, like other legal persons. It is the directors of the company that are responsible for managing the company.
Directors are in a position of trust and owe duties to their company which include:
- A duty of skill, care and diligence;
- A duty to act lawfully and to cause a company to act lawfully;
- A duty to act in the best interests of the company and for a proper purpose;
- A duty to not take advantage of position for the director’s own benefit (ie to prevent the director from having a conflict of interest); and
- A duty not to trade when insolvent.
The duties owed by directors are encapsulated under the Corporations Act 2001 (Cth).
If your company is a Not-For-Profit and is also registered as a charity with the Australian Charities and Not-For-Profits Commission (ACNC), then the directors are subject to the Governance Standards of the ACNC.
In addition to complying with your general duties as a director, your duty also extends to shareholders of the company. If the company is in financial distress, your duties can extend to the creditors and employees (who have outstanding entitlements).