Directors Health Check – Small family business or investment vehicle


When you set up your business or investment, did your accountant create a company for you? It is often the case that companies are created soundly, but the legal implications of becoming a director might not have been highlighted to you at the time.

Being a director brings a raft of responsibilities (under the Corporations Act, Work Health Safety Legislation, Fair Work Legislation and many other laws), but many people are appointed directors without being aware of the full extent of their obligations.

Often people think they are much safer when they have a company in place – for example they think their family home is safe, or the company can simply be wound up and they can move on if things go wrong. Sometimes this works, other times the directors get sucked into the mix and the assumed protection does not eventuate.

Some things every director should stop and think about are:

  • Who are the other directors of the company? Do you know what they are doing, and are you comfortable with their decisions?
  • If directors are all family members, do you really need more than one family member bearing the responsibility?
  • If there is more than one director, do you have clear written agreement about what an individual director can or can’t do without the authority of the other?
  • Do you know the current financial position of the company?
  • Can the company pay all its bills by the due date without hardship?
  • Do you know what insurances the company holds? Are they enough?
  • What happens to the company if you (or any other directors) die?
    • Who has control?
    • Will the company continue? Who will run it?
    • How will the company’s value be impacted?
    • Will the company be wound up? Who will get the assets?
    • Does the company fund life insurance to support the succession plan?
  • Are there any employees of the company?
    • Are employee entitlements up to date?
    • Are your employee conditions in line with the National Employment Standards?
    • Do you have employee policies regarding the following:
      • Bullying/Harassment/Discrimination,
      • Use of the internet,
      • Work Health and Safety procedures.
    • Do you know the work health and safety risks facing your employees?
      • Are you confident that those risks are being managed?
      • Do you have any concerns that an employee could be at risk of a significant injury or death?
      • Do you know how easy or hard it is for an employee to raise an issue?
    • Do you know the major risks facing the company, and are you comfortable they are being managed?
    • What is the company doing day to day? Is it working with other people/companies? What agreements are in place that cover these relationships and are they adequate to protect you?

If you are a director and don’t know the answer to some or any of the above questions – BE AWARE.  Get advice as early as possible on how to best manage your obligations – you may be personally liable and don’t know. Early advice and proactive action are significantly more cost effective than unravelling issues and disputes later on.