Directors’ Remuneration: A Practical Guide For Australian SMEs And Startups

If you run (or are about to launch) a company in Australia, you’ll eventually need to make decisions about director remuneration. It sounds straightforward - “how much do we pay the directors?” - but in practice it touches corporate governance, tax, cash flow, investor expectations, and (most importantly) legal compliance.

For many SMEs and startups, directors wear multiple hats. You might be a founder-director who also does sales and product. Or you might be bringing in an experienced independent director to help you scale. Either way, paying directors the “right” way can reduce disputes, protect your company, and keep your finances clean for future fundraising or an exit.

In this guide, we’ll walk through how director remuneration works in Australia, common ways to structure it, practical decision-making steps, and the legal documents that can make the process much smoother.

What Is Directors Remuneration (And Why Does It Matter For Your Company)?

Directors remuneration is the value a company provides to its directors in exchange for their role as directors. That value can be:

• Cash payments (director fees, consulting fees, wages if they’re also an employee)
• Equity-based incentives (shares or options, if appropriate)
• Non-cash benefits (for example, reimbursements, allowances, or benefits provided through the business)

It matters because directors are not just “staff”. Directors are responsible for the company’s governance and high-level oversight, and the way you pay them should align with:

• your company’s constitution and shareholder expectations
• your cash runway and growth plan
• tax and reporting obligations (it’s also worth checking the tax treatment with your accountant or tax adviser)
• good governance (especially if you’re raising capital, onboarding new directors, or planning a sale)

It’s also a common flashpoint for disputes in small companies. If remuneration is unclear - or agreed informally - it can lead to confusion about what’s owed, why it’s owed, and whether payments were authorised properly.

Directors Remuneration vs Salary: What’s The Difference?

This is where many SMEs get tripped up: a director can be paid in different “capacities”.

• As a director: they may receive director fees (remuneration for board duties and governance).
• As an employee: they may receive a salary or wages for day-to-day work under an employment arrangement.
• As a contractor/adviser: they may receive consulting fees under a services agreement.

In a startup, it’s common for a founder-director to be both a director and an employee (or contractor). The key is documenting which payments relate to which role, so your company isn’t mixing governance remuneration with operational remuneration.

How Can Your SME Or Startup Pay Directors (Common Structures)?

There’s no single best model for director remuneration. The “right” structure depends on your stage, cash position, and whether the director is a founder, investor, executive, or independent.

Here are common options Australian SMEs and startups use.

1. Director Fees (Fixed Or Meeting-Based)

Director fees are a classic approach where directors receive a set annual amount, sometimes paid monthly, or a fee per meeting.

This can work well when:

• you have an independent director or non-executive director
• you want predictable costs and clean governance
• the director is not involved in day-to-day operations

In practice, you’ll want clarity on what is included in that fee (board meetings, committee work, ad hoc advice, travel time, etc.).

2. Salary (Where The Director Is Also An Employee)

If the director is also performing an employee role (for example, CEO, CTO, Head of Sales), you might pay them a salary like any other team member.

From a business perspective, this can be a good way to “professionalise” the company early - especially when you need reliable payroll processes, clear KPIs, and a clean cap table story for investors.

In that case, an Employment Contract can help clearly separate executive duties from director duties, which makes remuneration and termination issues far easier to manage.

3. Equity Or Options (Especially In Early-Stage Startups)

For early-stage startups, cash is often tight. Offering equity (shares) or equity-like incentives (such as options) can be a practical way to attract and retain directors who add real value.

Equity can align incentives well, but it needs careful planning because it affects:

• founder ownership and control
• future fundraising (including investor expectations on dilution)
• decision-making rights (depending on share class and constitution)

It can also raise tax, corporate and disclosure issues depending on the structure (including whether you’re issuing shares/options, varying rights, or providing benefits “in connection with” a director role). It’s worth getting advice from a lawyer and your accountant before implementing an equity arrangement.

If your board or founders are considering equity for directors, it’s a good time to make sure your foundational governance documents are up to date, like a Company Constitution.

4. Reimbursements (Expenses, Travel, Tools)

Reimbursing directors for expenses (such as travel to meetings or necessary business costs) is common, even when you’re not paying director fees yet.

Be careful with reimbursements. If they aren’t properly substantiated, they can create tax, reporting or record-keeping issues (and in some cases may be treated as a benefit rather than a simple expense repayment). It’s a good idea to check the approach with your accountant or tax adviser.

A practical approach is to have an expenses policy, keep receipts, and make sure reimbursements are approved under a clear internal process.

5. Loans, Drawings, Or “We’ll Sort It Out Later” (High Risk)

In small companies, payments to directors sometimes happen informally - for example, taking money out when it’s available, or paying personal expenses through the business.

Even when everyone has good intentions, this is where problems often arise. If you’re using loans or informal withdrawals, you should get accounting and legal advice early, and properly document the arrangement (including repayment terms and approvals). Depending on the structure, there can be significant tax implications and Corporations Act issues.

It’s also worth understanding how a director loan works, because the legal and tax consequences can be significant if it’s not handled correctly.

Who Decides Directors Remuneration (And What Approvals Do You Need)?

One of the most important parts of director remuneration isn’t the number - it’s how the decision is made and whether the company followed its rules.

In Australia, director remuneration is typically governed by:

• the Corporations Act 2001 (Cth)
• your company constitution (if you have one)
• any shareholders agreement (common in startups)
• board resolutions and/or shareholder resolutions

Depending on your company, extra rules can apply. For example, if you’re a listed company (or planning to list), ASX Listing Rules and related party provisions can affect how director remuneration is approved and disclosed. Even for proprietary companies, your constitution or shareholders agreement may require member (shareholder) approval for certain payments or increases.

Founder-Run Companies: Avoid The “Self-Approval” Trap

In a two-founder startup, it’s very common for both founders to be directors and shareholders. If you’re paying yourselves, you need to be extra careful about conflicts of interest and documentation.

Even if everyone agrees, it’s still wise to record decisions properly so:

• you can demonstrate the remuneration was authorised
• you have a clear paper trail for accountants, investors, or future buyers
• you reduce the risk of disputes later (including between co-founders)

A Directors Resolution (and sometimes a shareholder resolution) is often the simplest way to document decisions and keep your records clean.

Startups With Investors: Expect Governance Conditions

If you have external shareholders (angel investors, seed funds, friends and family investors), they may expect guardrails around director remuneration. For example:

• caps on founder salaries until certain milestones
• shareholder approval thresholds for increases
• specific policies for director fees (especially for non-executive directors)

This is where a Shareholders Agreement can be very helpful, because it can set clear rules about remuneration approvals, decision-making, and what happens if founders disagree.

What About Related Party Transactions?

Paying a director (or a director’s related entity) can raise “related party” concerns - especially if the director provides services through another company or trust.

Even where it’s allowed, you’ll want to ensure:

• the arrangement is on commercial terms
• there is clear documentation of what services are being provided
• the company has properly approved the arrangement

This is particularly important for companies seeking investment or planning an acquisition, because due diligence will often look closely at payments to founders and directors.

Practical Steps To Set Directors Remuneration (Without Causing Future Headaches)

Director remuneration shouldn’t be a “set and forget” decision. It should be reviewed as your company evolves - but always with a consistent process.

Here’s a practical approach we often recommend for SMEs and startups.

Step 1: Identify What The Director Is Actually Doing

Start with a simple question: what role is this person performing?

• Board oversight only?
• Executive leadership (CEO/COO/CTO)?
• Hands-on operational work (sales, delivery, product)?
• Ad hoc advisory support?

Why it matters: the payment structure should match the role. Paying “director fees” for what is really employment work can cause confusion and compliance issues.

Step 2: Decide Your Remuneration Mix (Cash, Equity, Or Both)

Most companies balance:

• cash (to compensate time and responsibility)
• equity (to align long-term value creation)

Early-stage startups may lean heavily into equity. Established SMEs with stable revenue may prefer cash director fees.

If your company is considering equity, think ahead: Will you raise in 6–12 months? Will you need an employee option pool? Do you want to reserve equity for key hires instead of directors? Making these calls early can avoid painful restructuring later. It’s also important to factor in tax and compliance requirements (for example, how the grant is structured and documented).

Step 3: Benchmark (But Don’t Copy-Paste)

Benchmarking can be useful, but director remuneration isn’t “one size fits all”. Two businesses in the same industry can have completely different risk profiles and time demands.

It’s often more useful to benchmark the structure (fixed fee vs meeting fee vs equity) rather than chase an exact number.

Step 4: Document The Decision And The Terms

This is the step many small businesses skip - and the step that often matters most later.

At a minimum, you should document:

• who is being paid
• what they’re being paid for (director duties vs employee duties)
• how much and how often
• who approved it (board and/or shareholders)
• when it will be reviewed

Depending on the arrangement, you may also need a formal agreement (for example, an employment contract for an executive director, or a services agreement for consulting work).

Step 5: Build A Review Rhythm (Quarterly Or Annually)

As your business grows, director remuneration should evolve too. A sensible habit is to schedule an annual review aligned to:

• budgeting and cash runway planning
• performance reviews (if the director is also an executive)
• board effectiveness and governance maturity

This helps you avoid “surprise” increases, and it’s a strong governance signal to investors and stakeholders.

What Legal Documents Help With Directors Remuneration?

Good documents don’t just reduce risk - they reduce friction. When you have the right agreements in place, discussions about director remuneration become simpler and far less personal.

Depending on your company and how you’re paying directors, the following documents are commonly relevant:

• Company Constitution: sets baseline rules for how your company operates, including how director-related decisions may be made. Having a clear Company Constitution is especially useful once you have multiple shareholders.
• Shareholders Agreement: can include guardrails and approvals for founder pay, director fees, and how disputes are handled. A tailored Shareholders Agreement is often a key governance document for startups.
• Directors Resolutions and Minutes: records approvals and creates a clean audit trail. Using a Directors Resolution approach helps keep decisions consistent and defensible.
• Employment Contract: if the director is also an executive or employee, a proper Employment Contract helps separate employment entitlements (like leave) from board duties.
• Contracting/Consulting Agreement: where directors provide additional services outside board duties, a written contract can clarify deliverables, fees, and IP ownership. (This can be especially helpful if the director is providing specialist work through another entity.)

Key Takeaways

• Director remuneration is the value your company provides to directors for their director role, and it can include fees, salaries (if also an employee), equity incentives, and reimbursements.
• Many SMEs and startups pay directors in multiple capacities, so it’s important to separate director fees from employee salary or consulting fees to keep things clear and compliant.
• The safest approach is to set remuneration with a consistent process, record approvals properly, and ensure the arrangement matches your constitution and any shareholder governance documents.
• Informal payments to directors can create disputes and tax issues later, so documenting decisions early can save significant time and cost (and it’s worth checking the tax treatment with your accountant or tax adviser).
• Strong governance documents like a Company Constitution, Shareholders Agreement, Employment Contract, and written resolutions make director remuneration much easier to manage as you grow.

If you’d like help setting up director remuneration for your company (or updating your governance documents as you scale), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.