Who can be a Director?

Under the provisions of the Corporations Act 2001 there are requirements on who can be a director. This Q&A explains who can be a director, how many directors are needed and situations when directors can be disqualified or removed.

What are the Basic Requirements?

Section 201B of the Corporations Act 2001 provides that a director must:

• Be an individual, not a body corporate
• Be at least 18 years of age
• Not be disqualified from managing corporations under Part 2D.6. If they have been disqualified, the appointment must be made with permission granted by ASIC under s 206F or leave granted by the Court under s 206G

There is no upper age limit specified in the Corporations Act2001 for a director. However, a company's constitution may have age restrictions.

Does a Director Need to Hold Shares in the Company?

There is no requirement in the Corporations Act2001 that a director must hold shares in his or her company. Some companies will specify in their constitution that a person has to hold a certain number of shares before being appointed a director. Other constitutions may require the new director to buy shares within a certain timeframe of being appointed. A failure to meet these conditions will void the appointment.

How many directors are needed?

In public companies, there needs to be at least three directors, two of whom ordinarily reside in Australia. If a person is appointed as a director by the other directors of a public company, the appointment must be confirmed by ordinary resolution at the company’s next annual general meeting (AGM) or that person will cease to be a director at the end of the AGM (s 201H(3)). Similarly, where a person is appointed as a director of a proprietary company, the company must confirm the appointment by resolution within two months after the appointment is made or that person will cease to be a director (s 201H(2))

A proprietary company must have at least one director, who must ordinarily reside in Australia. For single director/single shareholder proprietary companies, a second director can be appointed by the original director recording the appointment and signing the record (s 201F).

A person may occupy the position of both director and secretary of a public or proprietary company.

Is written consent required?

A person must give the company their written consent to act as a director of the company before being appointed and the company has to keep the consent (s 201D). A failure to do so constitutes an offence under the Corporations Act 2001.

The company must notify ASIC of appointments, retirements and resignations of directors from office. The notifications must include certain personal details (e.g address and date of birth) (s 205B). Currently, this can be achieved by lodging an ASIC Form 484 within the prescribed 28 day period.

Situations where directors can be disqualified or removed

Corporations Act

The Corporations Act 2001 provides for the removal of directors by shareholders provided certain conditions are met (S 203D, 203c)

The Corporations Act 2001 also provides that automatic disqualification from a position of director occurs when a director:

• Is convicted of certain serious offences (eg an offence relating to the business or financial standing of the company) (s 206B(1))
• Is an undischarged bankrupt or has failed to comply with any prescribed insolvency procedures (s 206B(3), (4)).

Automatic disqualification for conviction of the prescribed offences is for five years (s 206B (2)) with the possibility of extending it by up to 15 years (s 206BA).

Both ASIC and the courts can also disqualify a person from acting as a director (ss 206C – 206G).

A person who is disqualified from managing a corporation commits an offence if:

• They make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
• They exercise the capacity to affect significantly the corporation's financial standing; or
• They communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation
  1. knowing that the directors are accustomed to act in accordance with the person's instructions or wishes; or
  2. intending that the directors will act in accordance with those instructions or wishes

Company's Constitution

A company’s constitution may also have provisions for removal from office, typically if the director:

• Resigns in writing
• Becomes of unsound mind
• Is absent from meetings of the directors held during a certain period of time (commonly three to six months) without the consent of the other directors
• Fails to declare an interest in a contract or proposed contract with the company.

Further Reading

R Baxt, Duties and Responsibilities of Directors and Officers (20th ed). Australian Institute of Company Directors, Sydney, 2012

Feedback

We encourage members to provide feedback on this Q&A by emailing library@aicd.com.au