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Setting up a company to run a business can be a relatively straightforward process. Most people know that shareholders and directors are the key components of a company.

However, few people understand that shareholders and directors have very different roles and so they have different rights and obligations. As experts in dispute resolution, Slater and Gordon has seen the problems that arise when directors do not fully understand their rights and obligations.

What is a director?

A director is a person who is responsible for the management of the company’s affairs. All companies must have at least one director.

You are considered to be a director if you have been validly appointed as a director of the company. Even if you have not been validly appointed as a director of the company, you are still considered to be a director if:

  • you act as if you are a director of the company (known as a ‘de facto director’); or
  • the company’s directors and staff usually act in accordance with your instructions or wishes (known as a ‘shadow director’).

What rights do directors have in a company?

Directors generally enjoy the following rights:

What duties does a director owe to a company?

Directors owe a number of duties to the company. These duties include:

What happens if a director breaches their duties?

Directors who breach their director duties may face serious consequences including being:

  • found guilty of criminal offence – the current penalties are imprisonment of up to 5 years and/or a fine of up to $200,000;
  • being found to have contravened a civil penalty provision – the current penalty is a fine of up to $200,000;
  • disqualified from managing any companies in the future; or
  • held personally liable for any company losses caused by their breach of directors’ duties.

Common pitfalls

Many problems can arise as a result of directors not understanding their rights and obligations. Some of the common pitfalls include the following:

How we can help

Slater and Gordon can help you by:

  • Providing you with advice about your rights and obligations as a director in a company
  • Assisting you to negotiate a resolution regarding an existing dispute within a company
  • Representing you in any legal proceedings relating to a company or director dispute

You can learn more about our dispute resolution services here, or if you have an enquiry about a partnership dispute, you can submit an enquiry online.

[1] Corporations Act 2001 (Cth) ss 203C and 203D
[2] Ibid s 181(1)(a).
[3] Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.
[4] Ibid.
[5] Corporations Act 2001 (Cth) s 180(1).
[6] Ibid s 182.
[7] Ibid s 183.
[8] Ibid s 191(1).
[9] Ibid s 588G.

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