Navigate with Confidence:
Directors' Duties

As a startup founder appointed as a company director, you assume important legal duties shaping key decisions. This guide decrypts the central obligations across areas like operations, finances, and compliance. We also summarise penalties for non-compliance.

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1.    Appointing Directors

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• Public companies require minimum 3 directors, 2 Australia residents

• Proprietary companies need 1 Australian resident director

• Directors must be over 18 years old

• Appointed by shareholders or the board

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2.    Core Directors' Duties

2.1.    Duty to Act Properly

Directors must use their powers in the company's interest, not for personal gain. For instance, issuing shares should be for capital raising, not diluting shareholders' power.

2.2.    Duty of Good Faith
Act honestly and responsibly in the best interests of the company

2.3.    Duty of Care and Diligence
Oversee management competently by:

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1.   Monitoring operations

2. Reviewing financials

3. Attending board meetings

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The 'Business Judgment Rule' can defend against breaches, provided the director acted in good faith and without a conflict of interest. The Business Judgment Rule is a legal principle that offers directors protection from liability for decisions made in their managerial capacity, provided certain criteria are met. To qualify, a director must make the judgment in good faith for a proper purpose, without a material personal interest in the decision, and after informing themselves about the subject matter to the extent they reasonably believe necessary. Additionally, they must rationally believe that their decision is in the best interests of the company, thereby shielding them from liability for business decisions that may not yield the expected results

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2.4.    Duty to Avoid Conflicts
•    Disclose personal interests in transactions
•    No misusing position or information for personal profit

2.5.    Duty to Prevent Insolvent Trading
•    Avoid debts that risk insolvency
•    Safe harbours exist for directors acting diligently

 

2.6.    Administrative Duties
•    Maintaining registers and financial records
•    Holding annual general meetings
•    Ensuring compliance with regulations

3.    Consequences of Breaching Duties
•    Criminal fines up to $999,000 or imprisonment
•    Civil penalties over $1 million
•    Personal liability for damages
•    Disqualification as director

As a startup director, vigilantly fulfilling duties is essential for legal compliance and sustainable growth. Our lawyers can provide tailored guidance and training to empower you in this pivotal role.

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