Congratulations, you have set up a new company and are now a director of a registered company! With all the signing of documents over, it’s time to roll up your sleeves and take your first few steps as a director of a new company.
If you are wondering what you need to do first as a new director, you will need to get on top of what it really means to be a company director, understand your legal responsibilities, and get the hang of record keeping and organising files.
While there is a bit to get through, don’t be daunted.
Once you get your head around everything, you’ll find that most of your responsibilities make good sense and the administration is relatively straightforward.
Read on below.
How Are Directors Different From Shareholders?
To start, it is worth clarifying how your new role is different to that of being a regular shareholder of a company.
Shareholders are different from directors in that the shareholders are simply the owners of the company. They are not responsible for the day-to-day managing and operating the company, but they do have a say in the company’s direction by voting.
Directors manage the business day-to-day, and must act in the best interests of the company. As a director, you are not able to make decisions in your own interests at the expense of the company. Even if a Director is also a shareholder of the company, their duties as Directors must always come before their interests as a shareholder.
Know Your Responsibilities
Having cleared up the differences between shareholders and directors, you will now need to make sure you are aware of your duties as a director.
As a company director, you now have a new set of obligations, including what can be called the ‘big four’ areas:
- To act with due care and diligence.
- To work in good faith.
- Not to improperly use your position.
- Not to improperly use information.
What Does Acting With Due Care And Diligence Mean?
The duty to act with due care and diligence means that you must be familiar with what is happening in your business and how it is operating and working, to the best of your ability.
For example, you need to be aware of what is happening both operationally and financially, keeping watch to guide your company and attending your board meetings (and pay attention!).
If you do not know about a particular area of the business, you must work to make the proper investigations and consultations to get on top of what you need to know in order to make good decisions for the company.
If in doubt, it is your duty as a director to seek professional advice (such as from an accountant or a lawyer) to help you make the right decisions for the company.
What Is ‘Working In Good Faith’?
As a director, your obligations will be to put the company first, and consider its interests ahead of your own.
For example, you may be faced with situations where you will need to make decisions that favour the company even when they disadvantage you personally.
These scenarios give rise to what’s called ‘conflicts of interest’, and as a director acting in good faith, you must avoid these situations.
What Is Considered Improper Use Of My Position As A Director?
Similar to the previous duty, this requirement means that you cannot use the company’s property for improper uses, such as for your own personal benefits or without the company’s authority.
Examples of this may include abusing your position in order to hire unqualified family members and relatives or requesting business favours from others under the guise that, since you are the company director, your company will do business with them.
How About Improperly Using Information?
As a director, you will likely come across some great business opportunities or commercially useful information. However, your duty not to improperly use information ensures that directors do not take unfair advantage of their position. This means that, in some circumstances, you will not be able to take advantage of these opportunities unless you have the company’s approval.
Are There Any Other Duties I Need To Be Aware Of As A Director?
In general, there are a few other obligations you’ll have to meet as a director. These include:
- Not trading while insolvent, which means not doing business if you know the company cannot meet its financial obligations.
- Keeping proper financial records, such as accurate financial statements, bank statements, contracts, tax returns, etc.
- Making proper disclosure of director’s interests.
- Lodging accurate information with ASIC in your annual statement.
- Making the company name known when you are trading under it, such as at your business address, on cheques, stationery, etc.
- Keeping track of your company’s decision making.
To keep track of your company’s decision making, you will need to keep written records called minutes. This is required even when you are the only director of your company, as the minutes can be made and signed by you.
So What Do You Need To Do Right Now?
1. Create And Maintain A Company Register
Remember your duty to keep proper records? Time to start.
Begin with creating a Company Register. A Company Register is a folder (which can be physical or electronic) of all the important documents relating to your company.
Things you will want to add right away include:
- Certificate of Registration
This is the document provided by ASIC that has the details of your company’s creation, such as the incorporation date, your Australian Company Number (ACN) and your company name.
- Company Constitution (if you have one)
While incorporating your company, you may have registered your company’s constitution, setting out the rules of how your company will be run for shareholders and directors.
- Any other relevant financial records or contracts
These documents can include any contracts you have formed since starting your business and any financial statements or general financial documents.
2. Organise Officeholders’ Consent Forms
One of the requirements of setting up a company is to get written consents of the people who will be your company’s directors and Company Secretary (if you have one).
This usually comes with most incorporation tools. It can also be downloaded on the ASIC website here.
Remember: you need to get these consents before you set up the company, so you should already have them by now. Make sure you keep records of these in your company register.
3. Start And Maintain A Shareholder Register
The best way to keep track of who the shareholders of your company are, and their interests, is with a Share Register.
This document can be a simple spreadsheet setting out the names and contact addresses of all members (shareholders) and their transactions.
Enter and maintain a record of all your members in your Share Register, together with their transaction information, including changes to a shareholder’s name and address.
How To Issue Shares In A Private Company
To properly issue your shares, you will need new members to sign a Consent to Act as a Member document, which details the company’s decision to allow the new shareholders and their share allotments.
Once you have completed this consent, you can enter the new shareholders into your Share Register, create and sign your share certificates and send these to your Shareholders, as well as keeping a copy in your Company Register.
Finally, you will need to notify ASIC of changes in shareholding of your company. You can read more about ASIC’s process here.
Note that you will likely want to put in place a Shareholders Agreement to ensure that everyone is clear on both the company and shareholder’s rights or obligations. Read more here.
While we have covered a lot of ground here, it is important to get on top of your new obligations as a company director.
With your Company Register, completed Consent to Act as an Officeholder forms and Share Register, you have now addressed the immediate housekeeping required as a new company director.
If you would like more information about your role as a director, setting up your company or managing your legal obligations, we are here for you! Contact the team at Sprintlaw for no-nonsense legal help at 1800 730 617 or firstname.lastname@example.org.