Are you a director or secretary of a company? Congratulations—you’re in an extremely rewarding and challenging position! But it’s also one that carries great responsibility and a number of legal obligations you should know about. Whether you’re a company director or secretary, your role as an officeholder requires you to undertake company officeholder duties as laid out in the Corporations Act 2001. Failure to do this can result in hefty fees or even the deregistration of your company. At times, dishonest and careless officeholders are also sent to prison. But don’t stress—reading through these tips should help you to sleep well at night.
The way company directors control the business of their company is set out in the company’s constitution or, in the absence of a constitution, replaceable rules (and sometimes a combination of both). This governance framework outlines the relationship between company activities, directors and shareholders and is agreed upon by the company shareholders.
There are ongoing legal expectations that come with your officeholder role. According to the Australia Securities and Investments Commission (ASIC) you must:
There are also specific legal obligations relating to registration, record keeping and passing solvency resolutions. You’ll need to carefully monitor annual statements and financial records. And in more irregular situations, you may even need a handle on whistleblower obligations.
Registration obligations extend well beyond the initial establishment of your company. To keep your company registered each year you’ll need to follow the following guidelines:
Pay your annual review fee by the due date
When you receive your annual statement, you’ll also get an invoice showing your annual review fee and when it is due. The amount owed varies depending on the type of company and public companies pay a lot more than proprietary companies. If you don’t pay this fee on time you’ll get slapped with a late charge, so pop it in the calendar!
Check your annual statement and make sure your company details are up to date
Inform ASIC if any of your company details have changed. If you have a new address, a new officeholder has joined company or your share structure has changed, you should aim to notify ASIC at the time of the change to avoid a late lodgment fee. But if you notice details have changed at the time of reviewing your annual statement you must then let ASIC know within 28 days of the annual statement issue date to avoid a further fee (late review fee). A good officeholder avoids ASIC fees!
At this time you can inform ASIC if you want to close your company—otherwise you’ll continue to pay your annual review fee and be required to meet all your officeholder obligations.
Pass a solvency resolution
A solvency resolution is a declaration, made within 2 months of the annual review date, of whether your company can pay all its debts when due. Ideally, your company officeholders feel confident in achieving this, in which case you simply need to store your solvency resolution with your other company documents. If it can’t meet debt obligations, you’ll need to lodge a statement with ASIC 7 days after the resolution has passed to acknowledge this. If you are concerned that your company is in financial strife, you may need to conduct a full solvency review to outline your options and make effective and legal decisions. This is the time to get professional accounting and legal advice!
Australian companies must keep written financial records that clearly define and record their financial transactions, performance and activity. Different types of companies have different obligations. For example, small proprietary companies don’t need to prepare formal financial statements, such as profit & loss statements or balance sheets etc. As a company officeholder it’s important to understand what records are required and what their future use might be.
From a business perspective, it’s a good idea to do this anyway to effectively monitor your company’s position. We recommend using a reliable accounting software package to keep track of this information in a meaningful way that’s easy to present to an auditor, should the need arise. ASIC has a full list of recommended books and records to keep.
There are many reasons why it’s important to protect whistleblowers. Look at the Edward Snowden case! Whistleblower legislation is in place in some states of Australia and company officeholders do have legal obligations under the Corporations Act 2001. It’s also recommended that your company has a code of conduct to clearly set out a preferred process for handling the revelation and your own obligations as an officeholder.
Is the person protected as a whistleblower?
A whistleblower is protected if they are an officer, employee or contractor (providing goods and services) of the company.
What protection are they provided?
The civil rights afforded to a whistleblower prevent retaliation and include privilege against defamation, remedies to address civil and criminal liabilities, and the reinstatement of employment if required.
How should a whistleblower’s revelation be reported?
To be protected, it’s important that a whistleblower reveals their knowledge to the right parties; usually ASIC, or a company auditor, officeholder or senior manager.
Whoever receives this information can then report the revelation directly to ASIC, APRA or the Australia Federal Police but cannot report to other third parties such as board members without the permission of the whistleblower.
Obviously, this is a detailed and complicated area of law, so you might like to get some more information from ASIC. You can see why it’s a good idea to have a company policy that guides this process.
Failure to fulfill your obligations can result in nasty fees or even the deregistration of your company. In more drastic cases, where dishonest or blatant negligence occurs, company officeholders can be sent to prison. Don’t worry—there are many resources and professional services teams that can help make sure this doesn’t happen. ASIC provides a handy checklist for registered companies and their officeholders, so that may be a good place to start.
It’s important to note that this article doesn’t cover every company situation or officeholder obligation, so it’s important to seek professional legal advice if you’re unsure. We’re always happy to answer your questions at CCASA! You may also prefer to delegate your officeholder obligations to an agency. Just make sure they’re a trusted professional as you may still be liable for any misdemeanors that result from company activity.
Note that if your organisation is registered as a charity, some of the legal obligations covered in this article won’t apply.
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