Your company and the law

New ID requirement for directors

Company directors are now required by law to apply for a director identification number. Find out more about director identification number.

This is Information Sheet 79 (INFO 79). It explains the responsibilities of company officeholders, including:

  • who can be a company director or secretary
  • what their legal obligations are
  • what company records you need to keep, and
  • general housekeeping business.

The legal requirements of officeholders are set out in the Corporations Act 2001.

If you're ever unsure about your obligations, we recommend getting professional advice.

Keep in mind that as the officeholder, you are responsible for making sure that the company meets all its obligations.

Can anyone be an officeholder?

Directors and secretaries are known as the officeholders of a company.

Company directors are required by law to apply for a director identification number (director ID). See Director identification number to learn more about director ID requirements.

To be an officeholder, you must be at least 18 years old.

The law does not allow you to be an officeholder or manage a company (without court consent) if:

  • you are currently bankrupt
  • you are still subject to a personal insolvency agreement or composition under the Bankruptcy Act 1966, or
  • have been convicted of offences like fraud or breaching your duties as an officeholder.

If you have been convicted of an offence committed against the corporation's interests, under the Corporations Act 2001 or for an offence involving dishonesty, you cannot manage a company or be an officeholder within five years of your conviction.

Similarly, if you have been imprisoned for an offence as mentioned above, you cannot manage a company within five years after your release from prison.

If you are a current officeholder and you have been convicted of an offence or are declared bankrupt, you are automatically disqualified. Your company must notify ASIC that you're no longer an officeholder. For more information, see Bankruptcy and personal insolvency agreements. In some cases, ASIC may also disqualify a person from being a company officeholder.

It is a serious offence to manage a company while disqualified.

What you need to do as a director

As a director or officeholder, your key duties include:

  • being honest and careful in all your dealings
  • understanding what your company is doing
  • making sure your company can pay its debts on time
  • ensuring your company keeps proper financial records
  • acting in the company's best interests, even if this conflicts with your personal interests
  • using any information only for the good of the company. Using information to gain an unfair advantage for yourself or others could be a crime.

If you have any personal interests that conflict with your duties as a director, you should disclose these at a directors' meeting.

What does a director's work involve?

A director's job is to manage the business affairs of a company. Your company's constitution (if you have one) may set out a director's powers and functions.

One of your main duties is to understand what your company is doing at all times. You need to:

  • find out how any proposed actions will affect the company, especially if it involves large amounts of money
  • question managers and staff about aspects of the business if you need to
  • be active and engaged in directors' meetings
  • get independent advice if you need more information to make an informed decision.

You should only agree to be a director if you understand your responsibilities and are willing to carry them out.

Be cautious of someone who offers to make you a director or secretary on the promise that 'you won't have to do anything'. You could be exposing yourself to legal liabilities.

What happens to dishonest directors?

Courts can impose heavy fines for breaches of the Corporations Act 2001 and even have the ability to send officeholders to prison.

As the corporate regulator, we investigate companies and directors for any potential corporate crimes. If you suspect an officeholder of dishonest conduct, you can report them to us.

Tell us when your company's details change

You need to let us know when your company's details change. This could be because:

  • you've moved to a new address;
  • an officeholder has left the company;
  • a new officeholder has joined the company, or
  • the company has changed its share structure.

We don't charge you to change your details, but we will apply a late fee  if you tell us more than 28 days after the change.

See 'Changes to your company' to learn more about what you need to update and how to change your details online.

What company records must you keep?

As a director, you must make sure the company keeps up to date financial records that:

  • correctly record and explain the company's transactions, and
  • outline the company's financial position and performance.

This ensures that accurate financial statements can be prepared and audited (if necessary) and the company can comply with taxation law.

For more information about what financial records you might need to keep, see What books and records should my company keep?

Company housekeeping and records

There's a few things that all companies need to do once they've started operating:

Display your company name wherever you do business

You must display your company name at every location where you carry on business and are open to the public. Public companies must also display their company name and the words 'Registered Office' prominently at the location of their registered office.

Include your ACN or ABN on all documents

You must include your Australian Company Number (ACN) or Australian Business Number (ABN) on all your company documents. This includes things like:

  • the common seal (if the company has one)
  • all your company's public documents
  • every negotiable instrument (like a cheque or promissory note), and
  • all documents lodged with ASIC.

Keep records of your members and any meetings you have

Your company should always maintain:

  • a register of all the company's members
  • copies of minutes from any general meetings
  • copies of minutes from any directors' meetings, and
  • any relevant financial records.

You must hold a copy of any relevant financial records for at least seven years after they were created.

Check your annual statement each year

Each year, we'll send your company an annual statement and invoice a few days after the company's review date (usually the anniversary of the company's registration date).

When you receive the annual statement, you need to:

  • check your statement and make sure the company's details are up to date. If your details are out of date, you'll need to update them as soon as possible.
  • pay your annual review fee by the due date, and
  • pass a solvency resolution.

Solvency resolutions

A solvency resolution is a resolution by the directors that the company can pay its debts if and when they fall due. It should be made within two months after the annual review date.

A 'positive' solvency resolution means that in the directors' opinion, the company can pay its debts when due. You do not have to lodge a positive solvency resolution with ASIC, but you must keep it with your company's records.

A 'negative' solvency resolution means that in the directors' opinion, the company may not be able to pay its debts when they fall due. If the directors pass a negative solvency resolution, you must let us know by lodging a Form 485 Statement in relation to company solvency within seven days.

The directors must have a reasonable basis for their opinion and the resolution must be passed by a majority.

You must also lodge a Form 485 if the directors don't pass a solvency resolution within two months of the annual review date.

When is my annual statement sent?

We'll always send your annual statement and invoice around your annual review date.

If you've registered for online access, we'll send a reminder by email. Otherwise, we'll mail the annual statement to another address. 

If you haven't received it within two weeks, contact us. Fees will apply if you pay after the due date.

See 'Annual statements' for more information about where we'll send your statement and what you need to do.

Illegal phoenixing reforms – what is this changing from 18 February 2021?

From 18 February 2021 amendments to the Corporations Act 2001 reinforces the need for companies to comply with minimum director requirements.

Companies can no longer cease the last director.

You can no longer use the Changes to company details form or the Form 370 Notification of resignation or retirement of officeholder to cease the last remaining director of a company, unless the company is being wound up.

Where the last remaining director is deceased or lacks the mental capacity to fulfil their legal obligations and was also the sole member of the company, a trustee or representative of the estate will need to contact us.

For all lodgements, the director’s cessation date will change if it’s more than 28 days from the lodgement.

If you submit a Changes to company details form, or Form 370 ceasing a company officeholder, and the cessation date occurred more than 28 days ago, the effective date of the director cessation will be replaced with the lodgement date of the form that ceased you as company director.

If you are ceasing a person both as a director and secretary, this may result in two different cessation dates on our registers.

If the cessation date of a director has been replaced with the lodgement date, you can apply to us to have this changed. You will need to lodge Form 502 Application to change the cessation date of a director within 56 calendar days of the original cessation date notified in the lodgement submitted to ASIC that ceased you as company director.

Once outside of this time frame, you must apply to the Court.

What if your company can't pay its debts?

Your company must be able to pay all its debts when they become due and payable. If not, then the company is considered to be 'insolvent'.

Trading while insolvent is a criminal offence. You may be subject to prosecution, heavy fines, or action from a liquidator/ASIC.

Common warning signs of insolvency include:

  • low operating profits
  • cash flow issues
  • problems with meeting loan repayments on time,
  • overdue taxes
  • an inability to pay suppliers on time, or
  • liquidity ratios below 1:1

If your company is in financial difficulty, seek immediate advice from an insolvency professional. They'll be able to assess your particular situation and recommend a course of action.

Don't assume that you'll be able to 'trade out' of the problem. Any delay could cause further issues for you and your company.

Once I've finished with my company, how do I close it?

If you don't need your company anymore, you should consider closing it. This means the company ceases to exists and removes you from your obligations as an officeholder (for example: keeping your details up to date).

To voluntarily deregister your company, you must make sure that the company:

  • is not conducting business
  • has assets of less than $1,000
  • has paid all its outstanding fees and penalties to ASIC
  • has no outstanding debts
  • is not part of any legal proceedings, and
  • all members have agreed to deregister.

For more information about closing your company and the options available, see 'Deregistration'.

Can you sell shares to the public?

Proprietary companies are not allowed to raise funds from the general public by selling shares, unless the fundraising does not require a disclosure document. For more information about shares, see 'Shares'.

Can I find more information about companies I deal with?

It's always important to know who you're dealing with. You can check a company's registration status by searching ASIC's registers. See Companies and organisations to search our register.

You should also read Dealing with businesses and companies: How to avoid being swindled for tips.

A final word

When acting as a company officeholder, keep the following in mind:

  • always be honest and diligent when acting for the company
  • understand your obligations and make compliance a part of your business
  • understand your company's financial position and business dealings
  • always act in the best interests of the company, its shareholders and creditors
  • seek professional advice if you're in doubt.

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Last updated: 15/10/2014 12:00