Are you a company director? Time to review your responsibilities!
Company directors need to keep in mind that the Corporations Act holds directors personally liable for many of the legal and financial obligations expected from a company.
Risks and liabilities
The corporate regulator, the Australian Securities and Investments Commission (ASIC), says failing to perform your duties as a director can, in the more extreme cases, lead to being found guilty of a criminal offence with a penalty of up to a maximum of $200,000, or imprisonment for up to five years, or both.
Examples of director liabilities
ASIC outlines an example of how a director may be asked by a bank to give a mortgage over their house to secure the company’s repayment of a loan. If the company does not repay the loan as agreed with the bank, the director will be liable (and could lose their house).
Another liability, for example, is that one’s obligations as a director continue even after a company has ceased trading. Under certain circumstances a director can still be held personally liable for ongoing debts and other losses even after a business has stopped operating.
Taxation obligations
And then there are the tax obligations for PAYG withholding and superannuation guarantee charge payments, which are outlined under the Tax Office’s “director penalty regime”.
The Tax Office, aware that some business readers may be feeling rather nervous about these reminders, recommends that directors brush up on what is expected of them. It says one good source is the ASIC Guide for Small Business Directors.
http://asic.gov.au/for-business/your-business/small-business/small-business-resources/asic-guide-for-small-business-directors/
Misconceptions
ASIC has found that small business company directors continually need to be reminded that as far as the law is concerned, a company has a distinct legal existence that is separate from that of its owner, manager, operator, employees and agents.
ASIC says a company has its own property, and its own rights and obligations. A company’s money and assets belong only to that company and must be used for the company’s purposes.
A company also has the powers of an individual, including the power to:
- own and dispose of property and other assets
- enter into contracts
- sue and be sued.
Company directors’ 7 key responsibilities
Company directors, according to ASIC, have seven key responsibilities:
- disclosing personal details of directors – a company must inform ASIC of the name, date of birth and current residential address of directors.
- having a current registered office – a company must have a current registered office in Australia and must inform ASIC of its location.
- having a principal place of business – a company that operates a business from a location different from the registered office must inform ASIC.
- keeping financial records – a company must keep up-to-date financial records that correctly record and explain transactions and financial position (larger companies have additional obligations to lodge financial reports with ASIC).
- notifying ASIC of key changes – whenever there are certain key changes to the company’s details (for example registered office, principal place of business, directors), ASIC must be notified.
- paying relevant fees to ASIC – for example, the annual review fee.
- checking annual statements – a company’s details on the ASIC register must be accurate and up-to-date.