Many business professionals aspire to one day move into a directorship role at some point in their careers.
Becoming a Company Director does sound glamorous, and it can also be rewarding and bring new opportunities. But, in reality, it requires a lot of hard work, responsibility and accountability, and can be very risky.
Many business professionals take the step of becoming a Company Director without extensively reflecting on risks of personal liability and without properly investigating the organisation, industry and stakeholders involved. Some Directors may even go as far as saying, “If I knew what I was letting myself in for, I might have had second thoughts”.
If you are considering or being considered to become a Company Director, it is important for you to reflect on the following before consenting to your appointment:
(a) Have you satisfied yourself about the Company’s financial position and performance? Have you reviewed the most recent Balance Sheets and Profit and Loss Statements, so you are able to make an informed decision?
(b) Are you satisfied that the Company is able to service its debts on time?
(c) Is the Company current with its Pay As You Go and Superannuation Guarantee Charge payments to the Australian Taxation Office?
(d) What is the Company’s standing in its industry or in the wider business community?
(e) What is the Company’s strategic plan for its business? Will your skills, knowledge and experience assist in achieving this plan?
(f) Is there a Deed of Access and Indemnity? Are there sufficient indemnities and will there be insurances in place to protect you from any exposure to risk?
(g) Have you considered what your duties and responsibilities will be as a Company Director? In a nutshell, some of these duties are as follows:
(i) You must ensure that you are fully up to date on the Company’s operations, including its financial position.
(ii) You must not use your position as Director, or any information obtained because of your position, to cause detriment to the Company or to gain an advantage for yourself or a third party.
(iii) When you make a business decision as a Director, you must ensure that you:
(A) make each decision in good faith and for a proper purpose.
(B) do not have a material personal interest in the decision and make it in the best interests of the Company;
(C) find out and assess how each decision will affect the Company’s business performance, particularly if it involves the Company’s assets or could have a material impact on the Company’s reputation; and get trusted professional advice when you need to make an informed decision.
You must prevent the Company from trading whilst insolvent as you may become personally liable for compensating any creditors as well as the Company for any debts incurred after the insolvency event.
Liability limited by a scheme approved under Professional Standards Legislation