5 Director Duties You Should Know

When looking to become a company or board director, exploring what that means for you is wise. There are company director duties you should know.

Directors hold a position of power and trust. They make critical decisions that affect staff and the organisation’s financial future. As such, directors have legal duties to uphold under the Corporations Act 2001, whether voluntary or paid.

So, here are five company director duties you should know to avoid severe penalties:

 

1. Perform the role with care, skill and diligence.

Directors are usually in charge of day-to-day operations and make decisions on behalf of the owners. Therefore, as a director, you should know what is happening in the organisation.

Critically, directors often seek advice from external consultants. However, you must trust and understand the impact of any advice before making decisions. Otherwise, you may breach your directors’ duties.

Seek legal advice to ensure you fully understand the expectations of your role.

 

 

2. Prevent insolvent trading.

A company becomes insolvent when it cannot pay its debts on time. As a director, you must ensure the company can afford to operate and pay its debts.

Therefore, you should know and understand the company’s finances.

Suppose you fail to prevent insolvent trading. In that case, you may have to pay the organisation for its debts personally. They may disqualify you from future management positions or, worse, fine or imprison you.

 

 

3. Act in good faith in the best interests of the company

Directors must always act in the company’s and its shareholders’ best interests. Therefore, you must avoid conflicts of interest and manage any that may arise.

For example, a conflict of interest arises if you use a relative’s business without exploring the alternatives. If there are no alternatives in the market, you must remove yourself from the negotiations.

Breaching the duty is a civil offence. Therefore, you may be fined and disqualified from acting as a director.

 

 

4. Do not use the position or information to gain a personal advantage.

As a director, you must not use the position to gain an advantage for yourself or someone else or to harm the company.

For example, buying office equipment above the regular price from a close relative, say your partner. Such an act has personal gain. Therefore, you are in breach of your duty.

Another example is using the information you receive to set up a competing business.

You must tell other directors if you think you have a personal material interest that may affect company decisions.

 

 

5. Maintain accurate records and prepare financial reports.

As a director, you must ensure the company keeps accurate records explaining the company’s transactions, financial position and performance.

The records may include:
• Receipts
• Invoices
• Cheques
• Financial reports

Therefore, you must feel confident that the company has proper accounting policies and processes. For example, check that there are correct processes to approve purchases.

Equally, you should understand the company’s financial reports, so if you need clarification, ask questions.

 

 

 

Insurance Advice for Company Directors

Clear Insurance can advise on the types of risk transfer and insurance programs that your company should have in place to protect the business and its directors.

The Clear Insurance risk and insurance review can assess your current risk and insurance program for peace of mind, regardless of complexity.