Directors of companies have significant legal responsibilities. Specific duties apply to directors in carrying out their role.
Who is a director?
The Corporations Act states that a “director” is a person who is appointed to the position of a director (or alternate director) or someone acting in the position of director.
The role of directors
The primary responsibilities of directors include strategic decision-making, oversight of operations, and ensuring compliance with legal and regulatory requirements. Directors act as fiduciaries, entrusted to protect the interests of shareholders, employees, and other stakeholders.
Duties of directors
A director of a company owes various duties to the company from the following sources:
- The general law
- Statute law, including the Corporations Act 2001 (Cth)
- The company constitution
Where a company is listed, additional requirements and responsibilities may also apply under the listing rules of the stock exchange.
Chapter 2D of the Corporations Act contains the general duties of directors. The general duties in the Corporations Act are not all the duties owed by directors, but largely codify the common law on directors’ duties.
General duties of directors
1. Duty of care and skill
Directors must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in the corporation’s circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director.
From a practical perspective this includes, but is not limited to:
- Being informed about the company’s activities and financial standing.
- Seeking expert advice when dealing with complex issues.
- Ensuring decisions are made in the best interest of the organisation.
2. Duty to act in good faith and for a proper purpose
A director must exercise their powers and discharge their duties in good faith in the best interests of the company and for a proper purpose.
3. Duty not to use position improperly
Directors must not improperly use their position with the intention of gaining an advantage for themselves, or someone else, or causing detriment to the company.
4. Duty not to use information improperly
A director must not improperly use information obtained because they are or have been a director to gain an advantage for themselves or someone else, or cause detriment to the company.
Directors who breach these duties are liable for civil and criminal penalties.
How Opportuna Legal can help
Opportuna Legal advises directors and boards on their duties and obligations under the Corporations Act, including governance frameworks and risk management. If you need guidance on directors’ duties or corporate governance, contact Opportuna Legal.
Anthony Jarvis is the Managing Partner of Opportuna Legal, a corporate and commercial law firm based in Perth, Australia. Anthony advises private companies, founders, and boards on M&A, capital markets, corporate governance, and commercial contracts. Anthony advises business owners and family groups on trust structuring, succession planning, and corporate governance.
Contact: reception@opportunalegal.com.au | (08) 6110 3748
This article is general information only and does not constitute legal advice. Readers should obtain professional advice specific to their circumstances before acting on any of the information contained in this article.